Is Clico being undervalued?

Last week Monday, I discovered that Clico’s 2010 audited financial report had been published and placed on the Web site of the financially troubled insurance company. The discovery was not by accident but because I had been regularly visiting the Clico Web site looking for those results for several months now. I can therefore state with a certain amount of assurance that the financials were published on September 3, even though the report states that the financials were approved for issue by Clico’s board of directors, which is chaired by Gerald Yetming, on July 25, 2012. There are several curious aspects to the Clico 2010 audit:

 

1)  Unlike the 2009 audit, which was published at the end of January this year, there is no chairman’s review of the 2010 accounts—or none was published with the 2010 accounts;

 

2) In the 2009 chairman’s review, which was for the year ending December 31, 2009, Clico chairman Gerald Yetming stated: “We anticipate that the 2010 audited financial statements will be available to the public by February 2012.” 

 

Yet although the 2010 audit was published ten months after it was “anticipated” that it would be “available to the public,” there has been no attempt by the Clico board, or indeed the Clico chairman, to explain the delay.  It’s almost as though the Clico employees, pensioners, policyholders, creditors, debtors and the taxpayers of T&T who contributed billions of dollars to bailing out Clico are of  absolutely no consequence to the company. Such an open display of contempt for its stakeholders does not bode well for the company which says that it wants to relaunch as a brand new entity by the end of this year. 

 

 

Or it could simply be that the Clico bosses did not expect an enterprising journalist to discover that the accounts had been published and to call them out on its lateness and its lack of a published chairman’s review? The Clico audit itself indicates that the insurance company recorded a loss of $910.9 million in the 12-month period ending December 31, 2010, which is a significant improvement compared with the loss of $4.7 billion in the same period in 2009. Clico’s improved results were as a result of the fact that it reported a profit of $52.3 million on its insurance activities in 2010, compared with a loss of $278 million in 2009 and the net results from its investing activities in 2010 was $503.9 million in 2010 compared with a loss of $2.6 billion in the prior year. Of great interest to all of Clico’s stakeholders would be the value of its investment portfolio. According to Clico’s 2010 financial report, the company had shares in four companies that are listed on the T&T Stock Exchange: Angostura Holdings Ltd; One Caribbean Media; LJ Williams A shares; LJ Williams B shares and Republic Bank Ltd.

 

 

• Clico holds 66,971,877 shares in 

Angostura Holdings Ltd, which is equal to 32 per cent of the rum and bitters manufacturer. At the end of 2010, those 66.9 million shares were worth $462.1 million. On Tuesday with Angostura trading at $9.10, Clico’s stake in the company was worth $609.4 million, which is an increase in value of 32 

per cent in two years and nine months;

 

• Clico holds 15,285,917 shares in One Caribbean Media (OCM), which is equal to 23 per cent of the media company. At the end of 2010, that stake was valued at $259.8 million. On Tuesday when OCM traded at $16 per share, Clico’s stake in OCM was worth $244.6 million;

 

• Clico’s 3,245,694 LJ Williams Class A shares were worth $1.7 million on December 31, 2010 and are now worth $1.1 million;

 

• Clico holds 10,190,584 LJ Williams B shares, 52 per cent of the B shares in issue, which were worth $11.2 million at the end of 2010. On Tuesday, those shares were worth $9.1 million;

 

• Clico’s 32.3 per cent stake in Republic Bank, equal to 51,858,299 shares, was worth $3.9 billion at the end of 2010. On Tuesday, when Republic Bank traded at $104.35, Clico’s stake was worth $5.4 billion; This means that Clico’s portfolio of listed shares, which was worth $4.6 billion at the end of 2010, is today worth $6.3 billion, which is an increase of 36 per cent.

 

But, in addition to the shares that are listed in Clico’s 2010 financial report, the insurance company is also listed as being the owner of 2,494,310 shares in Lascelles deMercado, the Jamaica conglomerate that CL Financial, which is also chaired by Gerald Yetming, agreed to sell at US$4.32 a share to the Italian spirits firm, Campari, last week. This means that if Clico’s stake in Lascelles deMercado has not been impaired that that stake in the Jamaican company is worth US$10.7 million or TT$69 million. It also means that Angostura’s 2,845,074 shares in Lascelles would be worth US$12.3 million, again if the stake is not impaired. Clico’s other major investment is, of course, its 56.53 per cent shareholding in Methanol Holdings Trinidad Ltd (MHTL), the company which controls five methanol plants (four on the Point Lisas Industrial Estate and one in Oman) with a total capacity in excess of 4 million tonnes per annum and the AUM1 complex. 

 

 

The value of Clico’s 56.53 per cent stake in MHTL in the insurer’s 2010 financial report was $4.725 billion (US$735 million), which means that the entire petrochemical company was worth just US$1.3 billion at the end of 2010. It also means that the minority 43.47 per cent stake in MHTL held by the entity named Consolidated Energy Ltd (which comprises the German companies Ferrostaal, Helm and Proman) was worth US$565 million at the end of 2010. Is US$1.3 billion a fair valuation for 100 per cent of MHTL and, therefore, is US$735 million a fair valuation for Clico’s 56.53 per cent stake in MHTL? If one considers that the market capitalization of Vancouver-based Methanex, which produces a similar amount of methanol as MHTL, was US$2.77 billion on Tuesday, one would have to argue that valuing MHTL at less than half of Methanex does not represent a fair value. Secondly, MHTL began commercial operations of its first downstream ammonia, urea ammonium nitrate and melamine (AUM1) complex in the first half of 2010. The complex has the capacity to produce 1.48 million tonnes per annum of urea ammonium nitrate and 60,000 tonnes per annum of melamine.

 

 

According to an MHTL news release in June 2010, the AUM1 complex represented an investment of US$1.7 billion. However, in 2009, MHTL was valued at $4.548 billion, which means that the increase in the value of the complex between the end of 2009 and the end of 2010 was $177 million, which is US$27 million. Do the auditors, KPMG, expect the taxpayers of T&T to believe that the addition of a US$1.7 billion investment to the MHTL portfolio in 2010 only contributed US$27 million to the value of Clico’s 56.53 per cent stake in the petrochemical complex at Point Lisas, which is the largest single private sector investment in the history of the English-speaking Caribbean? In what branch of accounting is a US$1.7 billion investment—at 56.53 per cent, Clico’s contribution to the value of AUM1 would be worth US$961 million—only worth an extra US$27 million?

Is either Mr Yetming—who is the chairman of CL Financial, Clico, Angostura Holdings, Lascelles deMercado and Home Construction Ltd, as well as being a director on the board of MHTL—or the reputable accounting firm of KPMG in a position to explain this apparent disparity?

 

 

Is it that the board of Clico took a decision not to represent the full value of MHTL because of the arbitration proceedings between the Government and Proman—a decision on which is expected this month in London? Is anyone at MHTL able to tell the public when was the last full valuation that was conducted on the methanol/AUM complex and what was the result of that valuation?

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