Once again, there is some buzz about the possibility of the Government revising the Clico bailout. By next week, the Government is supposed to discuss an amendment to the policy that would have meant the Clico Executive Flexible Premium Annuity policyholders, with investments of over $75,000, receiving repayment with 20-year, zero-coupon bonds. That approach, which was first outlined by Minister of Finance Winston Dookeran on September 8 in his 2011 budget presentation, would have meant that a policyholder with $100,000 who wished to cash in his 20 zero-coupon bonds immediately would have received about $63,000-a discount of 37 per cent. Obviously, the Dookeran Plan meant that anyone with more than $75,000 in the EFPA would have been penalised by only receiving 63 per cent of their investment, while those with less than $75,000 have received 100 per cent of their investment.
Two months ago, I was told that the revised offer that is on the table would have repaid the Clico policyholders about 90 cents on each dollar of investment in the insurance company. One of the announcements made in the 2011 budget presentation was that the Government had directed Clico to stop paying the interest on the EFPAs because of the investigation into "ghost accounts." Nothing has been heard of this investigation since September 8 and it is safe to assume that this was a ruse to stop the annual outflow of an estimated $1.2 billion (ten per cent of $12 billion) in interest from Clico's coffers.
At a saving of $100 million a month, one assumes that Clico has "saved" $1 billion between September 2010 and June 2011 that would otherwise have been paid to policyholders.
When the Government eventually gets around to making an announcement on its exit strategy for Clico-and another newspaper reported on Tuesday that that announcement could come by next week-will there be a full accounting for all the revenues the insurance company has earned since its collapse in January 2009? In the 30 months since then, Clico would have received four dividend payments, totalling $7.03, which means that the insurance company, the holder of 51.6 million Republic Bank shares, would have received $363.3 million in dividend payments alone. It is also noteworthy that Clico's 32.3 per cent stake in Republic Bank is worth $4.6 billion today, based on a share price of $90.17, which is $1.2 billion more than the stake would have fetched when the bank was trading at $68 per share.
In related news, CL Financial intends to ask the T&T and Jamaican holders of US$342 million ($2.2 billion) in floating rate commercial paper used to partially finance the Lascelles deMercado acquisition to accept a third delay in repayment. The Lascelles deMercado commercial paper, which is a short-term loan, was due for payment in January 2010, according to the group's government-appointed chairman, Gerald Yetming. Repayment of the US$342 million was first delayed until January 2011 and again until July 23. "We are in discussions with all noteholders for a further extension until December 2011. In doing so, we have given the noteholders a clear plan of how we intend to repay those notes. I expect that we will meet our new December deadline," said Yetming. The bondholders will be requested to accept the same interest rate of 10 per cent on the floating rate commercial paper, said Yetming, who said that interest payments are current.
Of the US$342 million ($2.2 billion), some US$102 million is held by Jamaican institutions and individuals, while US$240 million ($1.5 billion) is held by T&T institutions. One of the local financial institutions with an investment in the Lascelles deMercado commercial paper is the Unit Trust Corporation, which holds about US$57 million ($362 million) spread among its TT dollar Income Fund, its US dollar Income Fund, its Growth and Income Fund and its Universal Retirement Fund. Lascelles deMercado is a publicly listed Jamaican spirits company that is 86 per cent owned by CL Financial.
Asked whether the UTC would be willing to accede to the request from CL Financial, which is under the control of the Government following the June 2009 shareholders' agreement, to delay repayment of the commercial paper's principal, a UTC spokesperson said: "We will consider what is in the best interest of the unitholders in assessing any proposal by the CL Financial group."
In its December 2010 annual report, the UTC's holdings in the Lascelles paper was not listed among the assets in the four funds but was described as "other assets in excess of liabilities." Explaining this, the UTC spokesperson said: "By the end of December 2010, which was the cut-off date for last year's UTC accounts, the amended trust deed for the Lascelles bonds, was not yet signed. "It has since been signed and the bonds have since been re-classified as an asset in the portfolio." Meanwhile, Yetming confirmed that the proceeds from the sale of the CL Financial oil company, Primera, would be used to settle noteholders of Lascelles deMercado.Primera was sold to the small Canadian oil company Touchstone Exploration Inc for a total purchase price, net of liabilities assumed, of US$50.7 million ($326 million).