Royal Group Technologies Ltd. founder and majority shareholder Vic De Zen said transactions between Royal Group and the St. Kitts resort of which he is an owner ``have been done on appropriate commercial terms and are fully recorded in the books of Royal Group and the resort.''
Breaching nearly three weeks of silence, De Zen issued a personal statement on March 16, about an hour after a Royal Group special committee announced that, while those transactions are being investigated by the Royal Canadian Mounted Police, the company is not the target of the probe.
Royal Group had disclosed Feb. 25 that it was the subject of investigations launched by the RCMP, Ontario Securities Commission and the Canada Revenue Agency. The probes revolved around C$32 million (US$24 million) in transactions between Royal Group and Royal St. Kitts Beach Resort during a five-year period. At the time the investigation was disclosed, De Zen had no comment.
Royal Group's special committee said in its March 16 statement that RCMP is handling the investigation.
The Canada Revenue Agency has assisted in the probe, but is not conducting its own criminal investigation at this time, the Royal committee said.
Scott Bates, corporate counsel for Royal Group, said OSC informed the company on March 12 that it was not the target of the tax probe or the RCMP probe.
``So we're delighted because that allows us to reassure our shareholders and focus in on what we do, which is selling product,'' Bates said in a March 18 telephone interview. ``The only material investigation is the St. Kitts transactions, and that investigation is principally being handled by the RCMP; we understand that the RCMP is not targeting Royal Group.''
Bates said Royal Group does not know the specifics of what the RCMP is reviewing, but the firm itself continues its own internal investigation.
``We're verifying that what we've recorded for the sales is correct,'' Bates said. ``To date, we haven't been apprised of anything to indicate that we didn't receive full value for goods and services sold.''
Royal's stock responded positively to the news, as analyst sources said the statements have isolated the investigation to individuals rather than the corporation. As of March 18, the stock was trading at C$14.76 (US$11.03) per share on the Toronto Stock Exchange; on March 15, the stock traded at a high of C$13.65 (US$10.24).
Montreal brokerage firm BMO Nesbitt Burns Inc. upgraded its rating on Royal Group shares on March 17. ``Royal Group's base business appears to be turning,'' analyst Randy Cousins wrote in his report, acknowledging that the investigation by RCMP may have an effect on the ownership and/or leadership of the company. ``However, at this stage, based on the most recent information, the impact of the investigation on the company itself appears to be limited. ... Confidence in management and the company's financials are the issues for investors. There should be a favorable effect on the company's valuation if the investigations are limited to the St. Kitts project.''
De Zen said he endorsed Royal Group setting up a special committee in December when the extrusion giant learned that OSC was investigating the firm. De Zen said he met twice voluntarily with OSC and provided information under oath ``although I was not required to do so.''
``I have provided the special committee's forensic accountants with all the information they have requested and full access to all books and records related to the resort,'' De Zen said. ``A team of forensic accountants were in St. Kitts from Feb. 29 to March 11 as part of the review. ... I have moved quickly and decisively to do what I can to assist in this matter. I look forward to all parties completing their inquiries promptly so the record can be set straight.''
While OSC handed off the criminal investigation to RCMP in February, OSC continues to probe possible securities violations in Royal Group share trading, financial affairs and disclosures regarding transactions in St. Kitts, OSC spokeswoman Wendy Dey said in a March 16 telephone interview.
``The OSC has told us that if there are other areas they're looking into, they're not material to the company,'' Bates said. ``To date, we haven't heard anything to contradict our view that the company has acted appropriately and responsibly with regard to the transactions in question.''