On November 6, the Central Bank issued a statement in which it provided an update on the resolution plan for Clico, the insurance company that collapsed in January 2009.
There are several things that are noteworthy about the statement, which provides an update on the Central Bank’s original resolution announcement on March 27:
1 In the statement, the Central Bank claims, “Consultations are progressing with the Minister of Finance on the valuations of Angostura and CL World Brands.”
If this is true, the population should be aware that there is an unresolved matter of a $984.6 million debt that CL Financial owes to Angostura.
One of the grave flaws of the draft shareholders’ agreement between the Government and CL Financial that the Ministry of Finance, led by the former minister, was negotiating, was that this $984.6 million debt (called a receivable) would have been omitted from the final shareholders’ agreement.
In other words, it is my understanding that once Clico transfers its 32 per cent stake in Angostura, its 42 per cent stake in CL World Brands and its 43 per cent stake in HCL to the Government for $3 billion, the draft shareholders’ agreement stipulates that the Government should immediately transfer those shares to CL Financial, whose shareholders still include its former chairman Lawrence Duprey.
If the draft shareholders’ agreement is sanctified by the current Cabinet, it would mean that CL Financial shareholders would get to control 78 per cent of Angostura, 100 per cent of CL World Brands and 100 per cent of HCL. In return, the Government would get a debenture over the fixed and floating assets of the three companies and an annual payment over a long period of time.
It is my understanding that the shareholders’ agreement makes no provisions for CL Financial to repay the $984.6 million that it owes to Angostura. I guess if you own CL Financial and you have a controlling interest over Angostura, that debt can be simply cancelled with the stroke of a pen.
But more fundamentally, what sense does it make for the Government to transfer valuable assets to the group that got itself into financial trouble BEFORE taxpayers have been fully repaid for bailing out that group?
If that point sounds familiar, it is because I made it on a number of occasions in this space following the July 2013 leak of the original Letter of Intent between the CL Financial shareholders and the Government.
After more than two years of negotiations in which the shareholders’ agreement was extended ten more times, it seems that this fundamentally unfair arrangement remains set in stone.
The position of transferring assets to a group so that they can pay the Government over time, flies in the face of the common sense and the legally entrenched position that in situations like this, all the creditors of a failed company must be fully repaid BEFORE the shareholders are entitled to any benefits.
So I must ask: On what basis was the previous minister of finance (and his advisors, both financial and legal) proposing to allow Clico’s shares in Angostura, CL World Brands and HCL to be transferred to CL Financial shareholders BEFORE taxpayers are fully repaid?
If the issue is that CL Financial wants the control premium (more than 50.1 per cent ownership) of Angostura, CL World Brands and HCL, the point should be raised with them of whether they are entitled to the same.
Would it not be fairer and more equitable for the Government to retain the 32 per cent of Angostura, 42 per cent of CL World Brands and 43 per cent of HCL and for CLF to be compelled to repay the $984.6 million that it owes to Angostura?
In fact, doesn’t fairness and equity suggest that CL Financial should transfer 70.28 million of the 92.55 million Angostura shares it owns to the rum and bitters company to satisfy the $984.6 million CL Financial owes Angostura?
2 As with the first statement, the Central Bank failed to seize the opportunity to provide the taxpayers of T&T with information on the financial state of Clico, in general, and more specifically on the status of the company’s statutory fund. For a company that benefitted from a bailout of billions of taxpayers’ dollars and is now 49-per cent owned by the State, this failure represents a continuing lack of accountability and transparency on the part of the Central Bank;
3 It appears that it took the Central Bank more than a year to hire Oliver Wyman, the global management consulting firm, that was engaged by Clico and the Central Bank on October 14, 2015, as advisor to assist with the sale of Clico’s traditional insurance portfolio.
It is my understanding that Clico and the Central Bank received the valuation of the insurance company from Towers Watson at the beginning of October 2014. In the interest of accountability and transparency, the Central Bank ought to explain why the process of engaging an advisor to help sell Clico’s traditional portfolio took so long;
4 The Central Bank disclosed that Clico, following consultations with the Central Bank, engaged PAF Securities, a Miami-based investment banking firm, on May 6, 2015, to conduct independent valuations of Clico’s shareholdings in Angostura Holdings Ltd and CL World Brands. Angostura and CL World Brands are two of the three companies that Clico will transfer its shares to the Government for a total of $3 billion. The third company is Home Construction Ltd.
While PAF Securities was engaged to value Angostura and CL World Brands in May, it took four months for the Clico, following consultations with the Central Bank, to engage GA Farrell and Associates Limited and PAF Securities to conduct an independent valuation of Clico’s shareholding in HCL.
Is there any reason why GA Farrell and PAF Securities could not have been engaged in May, rather than on September 8 2015 and September 21 2015, respectively?
5 On the issue of PAF Securities, a company with that name with offices on Brickell Key Drive, Suite 604, Miami, Florida, has done a great deal of work in T&T, according to its website, some of which is outlined below:
• The company advised the investment consortium comprising the NIB, National Enterprises Ltd and the UTC on the acquisition of 100 per cent of the equity of Pan West Engineers, effectively 10 per cent of Phoenix Park Gas Processors, for US$168 million in November 2014;
• It advised First Citizens Bank on the August 2012 acquisition of Butterfield Bank for US$45 million in August 2012;
• It advised First Citizens on the comprehensive restructuring of US$171 million in long-term debt facilities provided to HCL for the construction of One Woodbrook Place
• It advised CMMB on the structuring and provision of a new US$12.8 million long-term debt facility to HCL in September 2010;
• PAF Securities advised First Citizens and its subsidiary, CMMB, on the restructuring of US$110 million of existing debt facilities from the bank, CMMB and Clico Investment Bank to Angostura in October 2010;
• It advised First Citizens on the acquisition of shares in CMMB in May 2009;
• It advised First Citizens on a US$50 million capital commitment by the Government in May 2009;
• It advised First Citizens on the assumption of about US$280 million in customer deposits from Clico Investment Bank in February 2009.
I make no further comment, at this point, on the apparent familiarity of PAF Securities to T&T entities.
6 In its November 6 statement, the Central Bank said that the process of selling/transferring Clico’s own assets required, among other things, consultations with the Minister of Finance under Section 44F (5) of the Central Bank Act.
On May 20, 2014, I pointed out that “in the performance of its functions and in the exercise of its powers under Section 44 D, the Central Bank shall comply with any general or special directions of the Minister and shall act only after due consultation with the Minister.”
It appears to have taken the Ministry of Finance 18 months to figure out that it is in control of 44D bailouts and not the Central Bank.
Disclosure: The author is a shareholder of Angostura Holdings Ltd.
