Senate Republican President Pro Tempore Len Fasano raised questions last week about the state’s plans to provide Seven Stars Cloud Group with a $10 million forgivable loan for development of the former UConn West Hartford campus into a global technology hub.
By Ronni Newton
State Senate Republican leader Len Fasano of North Haven raised questions last week about the administration’s decision to provide a $10 million forgivable loan through the governor’s First Five Plus program to Seven Stars Cloud Group, which plans to develop the global headquarters of Chain Valley on the 58-acre former UConn West Hartford campus, but Department of Economic and Community Development (DECD) Commissioner Catherine Smith said that the project has been vetted and her agency does not feel the deal is a financial risk to the state.
The plans for the development were announced by Gov. Dannel P. Malloy during a July 3 press conference, and on July 6, UConn’s Board of Trustees formally approved the sale of the campus to Seven Stars Cloud Group. The sale is expected to close early this fall, and although it is expected that West Hartford’s Town Council will need to approve rezoning of the property, the sale was not contingent on that action.
“As we do in all loans, grants and other forms of financial assistance, DECD performed a thorough assessment of Seven Stars Cloud Group (SSC) before determining whether to provide financial assistance and subsequently what form and level of assistance would be appropriate,” Smith said in a statement. “As is typical, we constructed a financial agreement with the company that reflects the risks we saw in the project and its sponsor, as well as providing the proper level of assistance to incent the large investment and hundreds of jobs that were promised.”
The $283 million project is expected to create 330 jobs in research, training, and business development in blockchain technology and artificial intelligence over the next five years. The company indicated that the development would maintain the open look and feel of the campus that will be a showplace for the town and region – “a facility so modern and dynamic that it will attract the best talent and companies, making this site the blockchain capital of the U.S. and the world,” SSC Executive Chairman and CEO Bruno Wu said in a July 3 press release announcing the deal.
In the July 3 announcement, SSC said that the company plans to partner with the team that led the building and development Europe’s fintech and smart city hub, Level 39, to “make Chain Valley one of the world’s most impressive technology and innovation hubs.”
“Initially, I was cautiously optimistic hearing about Seven Stars Cloud (SSC) decision to establish its North American headquarters in the Greater Hartford area,” Fasano wrote in a July 11 letter to Smith. “However, upon further investigation and analysis by staff and concerned taxpayers, I’m perplexed regarding DECD’s decision and therefore I am writing to seek more information regarding the decision to offer a $10 million loan to a company that does not earn any money and is less stable than originally reported.”
He questioned the company’s profitability and stock market performance, sustainability, return on investment and investment in research and development, and audits, stating in his letter that the company is “on borrowed time, something their auditors have emphasized and noted.” He also criticized DECD’s record of investment, calling it “spotty.”
Smith countered that Fasano, in his letter, showed “a fundamental misunderstanding not just of this project, but of the department’s economic development efforts.” The loan is not a risk, she said, because it is completely secured by a letter of credit from a U.S. chartered financial institution that could be cashed in to repay the state if SSC were to default.
Smith said that SSC is in growth mode, and had a 500 percent jump in revenue for the quarter that ended March 31, 2018. SSC is purchasing other companies and entering into joint ventures, and because of that, losses on an income statement are not uncommon, she said.
Leigh Appleby, a spokesperson for Gov. Malloy, also reacted to Fasano’s letter. “It’s sad that someone with no ideas and no real plan is once again raising a racket and throwing stones from the sidelines rather than offering any solutions whatsoever. It’s equally sad that it appears to be so hard for him to welcome good news of the creation of hundreds of paying jobs and great use for a vacant UConn campus,” he said.
State Rep. Derek Slap of West Hartford said that he spoke with DECD on Thursday and “was assured that the state’s exposure is limited in that it has a line of credit against the loan so even if the company went bankrupt taxpayers would still get their money back.”
Asking questions is important and Slap said he would continue to do that. “We all want the company to succeed and the economy to grow,” he added.
Wu, in a statement made to CTNewsJunkie on Sunday, defended SSC finances. “The company is debt-free with a strong balance sheet, reflecting total assets of $140 million,” he said. The plans are for Chain Valley to bring 30-40 companies into the West Hartford global technology hub, including some start-ups and others owned by SSC parent company Sun Seven Stars Investment Group of China, Wu said.
Wu is quoted in a July 14 article in the Hartford Courant as stating that Fasano is right about blockchain as a whole being a volatile industry. “But not us,” he is quoted as telling the Courant, adding that the project will “prove itself to be probably one of the biggest comeback stories ever in Nasdaq.”
According to the Courant, Wu plans to develop Chain Valley at an aggressive pace, in four main units, beginning as soon as this September.
State Rep. Joe Verrengia of West Hartford, who initially voiced his support for the SSC purchase of the campus for creation of Chain Valley, said, “I have not wavered in my support for this development. I’m confident that SSC has the financial wherewithal to bring a state-of-the-art development and hundreds of high-paying jobs to West Hartford. If SSC were to default, the financial exposure to the state is limited given the fact the loan is secured.”
State Sen. Beth Bye of West Hartford said that this is exactly the type of development, creating the type of jobs in the insurance and technology field, that the region is trying to attract.
“This is the next step. It fits what we’re trying to develop by having these support companies,” Bye said. She said that although DECD hasn’t always gotten it right, “their record is very good,” and it’s their job to make these types of decisions.
“For all the yelling about Connecticut not developing business, the last few months have seen good news,” Bye said. “There’s always a risk when starting a new business, a new technology, but I think this is exactly what we’re trying to develop, what we are looking to draw.”
Asking questions is important, Bye said, and she appreciates the public’s interest and engagement in the process.
“This project is a win-win and will accelerate our efforts to create a technology and innovation hub that will attract similar companies and talent to the Hartford region and the state as a whole,” Smith said of Chain Valley.
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