On January 2, 2023, the Clico Investment Fund will be terminated.
The CLICO Trust Corporation Limited posted a notice to the T&T Stock Exchange on December 14, where it advised unitholders that the last trading day for units in the Fund will be December 30, 2022, and the Record Date for distribution of the Fund assets will be January 5, 2023.
As the days count down to the end of the Fund’s lifetime, the man who was crucial to the fund’s creation; David Dulal-Whiteway has hailed it as a success particularly given the balancing act he had been tasked with at the time following CL Financial’s collapse.
“I think it’s important to go back, because this is 2011 and these are the issues being faced. And I said, ‘How do you create something that could represent a win-win for the three major players; policyholders, government and Republic Bank.’ I mean, so that was the objective to get a win-win for all three like I said, if I sit back now and look at it after 10 years I think we achieved what we went out to do,” said Dulal-Whiteway, referring to the equation he had been asked to solve in the wake of the collapse of CL Financial and the subsequent government bailout which left the Government in possession of much of Clico’s assets, including a 51 per cent stake in Republic Bank via a 26 per cent stake held by Clico the Insurance Company and a combined 25 per cent from CL Financial’s various subsidiaries.
The government prepared to offer aggrieved policyholders an approximate $10 billion worth of zero-coupon bonds to the Clico policyholders left in limbo but Dulal-Whiteway felt an alternative could be found.
“At that time 2011 Republic Bank shares were about $93. So total market capitalisation Republic’s total value is about $15 billion and therefore Clico’s 51 per cent. was worth about $7.6 billion,” said Dulal-Whiteway, “The Government also as part of the bailout issued about $10 billion worth of zero-coupon bonds to former policyholders of Clico.”
He explained while the zero bonds would offer some level of payout to Policy workers, it ultimately would not generate any new income for those policyholders who had been banking on the interest generated by their Clico investments previously.
“They have the zero-coupon bonds, which are going to mature between 11 to 20 years, but a zero-coupon bond doesn’t pay any interest. It’s zero interest and only in maturity do you get proceeds from the bond. As you may know, a lot of these policyholders are depending heavily on the interest income they were earning from Clico because Clico might have been paying them eight per cent or nine per cent, etc. And especially for the more elderly ones, that is the source of a major source for them to supplement their pension income, etc,” he explained that if policyholders sought to cash in on the coupons, they would stand to lose on their investment.
“If they wanted to cash in the bonds, you could have gone to one of the banks cash it in, but because there were zero coupon bonds and the length of the bonds on average, you’re only getting 50 cents on the dollar,” he said.
The Republic shares served up another concern that the Government could either decide to utilise its position to take ownership of the Bank or instead decide to recoup the money spent on the bailout by selling the bank to a foreign company.
The latter, Dulal-Whiteway explained, was a possibility as there were foreign companies expressing interest creating uncertainty about the Bank’s future in the local market.
However, he appealed to then Minister of Finance Winston Dookeran to place faith in the local market.
“My argument has always been that when a country looks at diversification, there’s a lot of focus on product diversification, you know, mainly on the energy side, but I also always made the point that market diversification is also an important element. And as a country, we should really encourage and support local companies who are willing to go outside because any of these surpluses they earn from outside will come back into Trinidad and help with the foreign exchange,” he said, “I used my argument about diversification, the need to support local, companies who can go outside. I think that got favoured at the end of the day.”
This allowed him to pitch his idea to utilise the Republic shares as a basis for what would become the Clico Investment Fund, which was set up as a means to satisfy the government which still needed to be repaid for the bailout, ensuring stability and confidence around Republic’s ownership while ensuring policyholders could find some level of return on investment.
“I was looking at all the players who might be policyholders who had zero-coupon bonds. One is if you need cash, that’s the other thing. We were saying then that the fund must be traded on the Stock Exchange and the reason for that is that if somebody didn’t want to wait on the investment, they had a way in which they could exit at 100 cents on the dollar. Because you could have gone into the exchange and traded the shares. If they wanted to exit with zero coupon bonds, they only gained 50 cents on the dollar. If we went through this route, there is a possibility of getting 100 cents on the dollar,” said Dulal-Whiteway, who would later reach out to the chairman of the Clico Policyholders group Peter Permell to encourage policyholders to choose the fund when it was started. However, the Government did not allow the fund of the entire 51 per cent stake of the Republic shares it had absorbed from Clico.
“If you do the swap, the government will retire those zero-coupon bonds and therefore reduce its indebtedness right because they no longer have zero coupon bonds outstanding. And from a Republic perspective, we will remain locally owned we have settled our whole 51 per cent shareholding and we have brought in a whole new gamut of I would say shareholders who will then benefit from the future growth of Republic Bank. So this structure I felt created as a win-win for everyone,” he said, “ While I was aiming for the whole 51 per cent I was told that Clico’s 26 per cent from the insurance company could not be part of this structure because with the administrator being inside of Clico, it depended on cash flow to start dealing with the clinical indebtedness. The normal current indebtedness, not the policyholders and the cash flow from Republic which they receive from the dividends. was critical for that administration to continue.”
Despite that adjustment, Dulal-Whiteway felt the terms were still favourable and urged all those who invested in the fund to see it out to the very end.
“I’m a bit concerned about a couple of things. One is that I see up the last week people are still selling their units in the CIF and they’re selling these units for like $28 on the Stock Exchange. When if they hold on until next month when everything stops they will get $30,” said Dulal-Whiteway who also noted that following the termination of the fund, investors would still have ownership of Republic Bank shares, which could be a useful asset especially given the bank’s potential for growth.
He advised “When you get the Republic Bank shares don’t sell them now, because the share price is lower than what the future expectations are. So hold on for a while and we had the price rise move up there’s no reason why the price I should say no financial or economic reason why the share price dropped from $141 to $135. So at least you should be at $141,” he said.
However even if they chose to sell now, he felt all involved would come out with a better return on investment than the scenario with the zero-coupon bonds a decade ago. In his words, a win-win was secured.