Questions are being raised as to why a large financial transaction undertaken by Demerara Distillers Ltd (DDL) is not reflected in their 2002 accounts.

On June 6, 2002, DDL won a competitive bid process for a block of commercial loans being sold off by the US Federal Deposit Insurance Corporation (FDIC) as part of their auction of the assets of the insolvent Hamilton Bank in Miami, Florida.

The pool of commercial loans DDL bought as part of that liquidation had a book value of US$4.673M and the price DDL paid through its successful sealed bid was US$3.5M or 75.10% of book value. The loans were purchased through a competitive sale process.

This transaction was not noted in the 2002 financial statements.

The overall liquidation of Hamilton Bank shows that the FDIC and its contractors had loans worth US$1B and recovered US$840M, roughly 84 cents on the dollar.

When asked about the transaction, company financial comptroller, Loris Nathoo said DDL had had a credit facility for many years with Hamilton Bank, based on the company's accounts receivables.

He denied the loans, which were actually owed by DDL, were non-performing (classified as having no payments for the last 90 days), as was indicated in information from the FDIC, saying all loans were classified this way once a bank is taken over.

An FDIC official said this was not the case as most failed banks did have some good loans on their books at the time of closing.

Nathoo said when the bank was closed, DDL still had to settle the debt with the FDIC and as such saw it better to bid for its own loans than have them bought by another company.

He said since the transaction happened within the financial year and the loans were short term, the company did not see it was necessary to report the matter in its statement. He said the 25% discount-valued at US$1.1M-reflected interest and other charges.

A later statement by DDL said, "the net effect resulted in no gain or loss to the company after accounting for all the balances both debit and credit with the bank. This was the rationale for arriving at the settlement amount...

It is noteworthy that DDL once again has normal banking relations with the Israel discount bank, who acquired the defunct Hamilton bank from the FDIC."

But observers say the difference between the book value and the discounted amount DDL paid, should have been highlighted in the year-end statement.