An­tho­ny Wil­son

With the ev­i­dence stage of the Com­mis­sion of En­quiry com­plet­ed and with 22 days to go be­fore the May 31 ex­piry of the share­hold­ers' agree­ment be­tween CL Fi­nan­cial and the Gov­ern­ment, the cru­cial is­sue for me is whether the State can re­cov­er the $20 bil­lion that has al­ready been spent bail­ing out the CL Fi­nan­cial group plus an ad­di­tion­al $5 bil­lion and count­ing it is es­ti­mat­ed the State may end up spend­ing.

With the Gov­ern­ment hav­ing con­vinced more than 95 per cent of the Ex­ec­u­tive Flex­i­ble Pre­mi­um An­nu­ity pol­i­cy­hold­ers and the in­vestors in the Cli­co and British Amer­i­can mu­tu­al funds to ac­cept its of­fer, the at­ten­tion of the State must now be fo­cussed on mak­ing tax­pay­ers whole.

At this point, the State should have six goals in bring­ing an end to the Cli­co is­sue:

�2 It should be fo­cus­ing on max­imis­ing the re­cov­ery of the $25 bil­lion the Gov­ern­ment has spent or will spend bail­ing out the con­glom­er­ate;

�2 It should en­sure that the rev­enues re­cov­ered are im­me­di­ate­ly al­lo­cat­ed to re­duc­ing T&T's debt from the bailout and are not side­tracked to oth­er ar­eas of ex­pen­di­ture;

�2 It should en­sure that the suc­ces­sor com­pa­ny to Cli­co is placed on a strong fi­nan­cial foot­ing and is im­me­di­ate­ly pro­grammed for list­ing on the lo­cal stock ex­change;

�2 It should en­sure that the res­o­lu­tion has a pos­i­tive im­pact on the coun­try's macro-eco­nom­ic fun­da­men­tals or, put an­oth­er way, that the res­o­lu­tion does not dis­rupt the econ­o­my by un­leash­ing a new wave of in­fla­tion or cap­i­tal flight;

�2 The res­o­lu­tion would need to en­sure that the share­hold­ers of CL Fi­nan­cial do not prof­it–or are not seen to be prof­it­ing–un­du­ly (if at all) from their own­er­ship stake in a failed and cor­rupt en­ter­prise, pri­mar­i­ly be­cause this is a coun­try in which moral haz­ard takes root very quick­ly;

�2 At the same time, and some­what con­tra­dic­to­ri­ly, the Gov­ern­ment needs to en­sure that the res­o­lu­tion is fair, eq­ui­table and le­gal.

All of CL Fi­nan­cial, as in 100 per cent, is owned by its share­hold­ers–the largest of whom is the group's for­mer ex­ec­u­tive chair­man Lawrence Duprey. While there may be out­rage lo­cal­ly at Mr Duprey's de­ci­sion not to tes­ti­fy be­fore the Com­mis­sion of En­quiry, it must nev­er be for­got­ten that the CL Fi­nan­cial shares con­sti­tute prop­er­ty and that the group's share­hold­ers have a fun­da­men­tal hu­man right, en­shrined in the T&T Con­sti­tu­tion, to the en­joy­ment of their prop­er­ty and "the right not to be de­prived there­of ex­cept by due process of law."

The need for fair­ness al­so means that if there is val­ue left in CL Fi­nan­cial AF­TER tax­pay­ers and oth­ers have been made whole, that val­ue must be re­turned to the share­hold­ers of the group.

But un­der no cir­cum­stances, should any of the CL Fi­nan­cial share­hold­ers labour un­der the il­lu­sion that they can re­cov­er even one cent of val­ue from the group BE­FORE tax­pay­ers and oth­ers are made whole.

Yes, the share­hold­ers have rights. But so do T&T's tax­pay­ers. They too have a right not to be de­prived of their prop­er­ty–as in the $20 bil­lion in tax­pay­ers' eq­ui­ty, equal to about 15 per cent of T&T's GDP, that was used to bail out CL Fi­nan­cial–ex­cept by due process of law.

In this case, the rights of the ma­jor­i­ty (the tax­pay­ers) must trump those of the mi­nor­i­ty (the share­hold­ers).

So, $20 bil­lion in val­ue (and a size­able con­tin­gency fund) must be re­turned to the tax­pay­ers first.

Next in line are CL Fi­nan­cial's oth­er cred­i­tors–in­clud­ing the pol­i­cy­hold­ers, even those who have al­ready ac­cept­ed the Gov­ern­ment's of­fer and fi­nan­cial in­sti­tu­tions that lent the group mon­ey.

Fi­nal­ly, if there is any val­ue left in CL Fi­nan­cial, the share­hold­ers must be last in the line, in ac­cor­dance with the well-es­tab­lished tra­di­tion of com­pa­nies in dis­tress.

The is­sue, then, be­comes de­ter­min­ing the val­ue that can be ex­tract­ed from CL Fi­nan­cial.

What is the val­ue of CL Fi­nan­cial?

CL Fi­nan­cial's main as­sets are the fol­low­ing:

�2 51 per cent of Cli­co. The Gov­ern­ment on be­half of tax­pay­ers owns 49 per cent;

�2 44.9 per cent of An­gos­tu­ra–worth $878 mil­lion at $9.50 a share

�2 58 per cent of CL World Brands

�2 57 per cent of Home Con­struc­tion Ltd

But it is im­pos­si­ble for a mem­ber of the pub­lic to de­ter­mine the val­ue of CL Fi­nan­cial be­cause the group–which has been un­der the man­age­ment and con­trol of the Gov­ern­ment since June 2009–has failed to present any au­dit­ed fi­nan­cial re­sults since 2007.

This lack of trans­paren­cy and ac­count­abil­i­ty on the part of CL Fi­nan­cial means that it is much eas­i­er to as­sess the val­ue of Cli­co, which has pub­lished au­dit­ed fi­nan­cials for 2009 and 2010.

Of­fi­cial­ly, Cli­co is now joint­ly owned by the Gov­ern­ment with a 49 per cent per cent stake and CL Fi­nan­cial, with 51 per cent.

The val­ue of Cli­co main as­sets:

1) Gov­ern­ment bonds–worth an es­ti­mat­ed $7.3 bil­lion. Cli­co's 2010 ac­counts in­di­cate $2.9 bil­lion in Gov­ern­ment se­cu­ri­ties as at De­cem­ber 31, 2010. One as­sumes this was part of the $5.1 bil­lion in Gov­ern­ment bonds is­sued in 2010 to ac­quire re­deemable pref­er­ence shares equal to 49 per cent of Cli­co's eq­ui­ty. The pref­er­ence shares car­ry an an­nu­al div­i­dend rate of 4.75 per cent.

Al­so, in No­vem­ber 2012, the Gov­ern­ment is­sued bonds worth $4.4 bil­lion to pay for the 40 mil­lion Re­pub­lic Bank shares that were then trans­ferred in­to the Cli­co In­vest­ment Fund;

2) Just over 11 mil­lion Re­pub­lic Bank shares worth $1.2 bil­lion;

3) Over 56 per cent of Methanol Hold­ings worth about $8 bil­lion (au­thor's es­ti­mate);

4) Ex­act­ly 4,584,712 Wit­co shares–worth a mar­ket price of $458 mil­lion (num­ber of shares in Wit­co an­nu­al re­port, but not in Cli­co's ac­counts);

5) Ex­act­ly 15,285,917 shares in One Caribbean Me­dia–worth mar­ket price of $253 mil­lion;

6) Some 43 per cent of Home Con­struc­tion Ltd–val­ued at $380 mil­lion, ac­cord­ing to the 2010 KP­MG au­dit;

7) Some 66.9 mil­lion shares in An­gos­tu­ra–worth $635 mil­lion;

8) Some 42 per cent of CL World Brands–worth $630 mil­lion by au­thor's es­ti­mate if 100 per cent of CLWB is worth �150 mil­lion (just over $1.5 bil­lion). CLWB owned 71 per cent of Burn Stew­art, which will even­tu­al­ly re­sult in $921.4 mil­lion in cash be­ing re­turned to CLWB.

CLWB al­so owns 92.5 mil­lion An­gos­tu­ra shares (44.9 per cent), which were val­ued at $832 mil­lion on Fri­day. In its 2011 ac­counts, which were sub­mit­ted on De­cem­ber 7, 2012, CLWB re­port­ed that its bank debt was �37.3 mil­lion. Its debt due to its par­ent CL Fi­nan­cial or to group un­der­tak­ings was �24.9 mil­lion, which can be ig­nored for the pur­pos­es of this ar­gu­ment.

CLI­CO's TO­TAL AS­SETS = $18.5 bn (au­thor's es­ti­mate)

Li­a­bil­i­ties (ac­cord­ing to KP­MG's 2010 au­dit)

�2 In­vest­ment con­tracts–$12.6 bil­lion (com­pris­ing EF­PAs worth $11.6 bil­lion, man­aged funds worth $650 mil­lion and de­posit ad­min­is­tra­tion con­tracts worth $360 mil­lion)

�2 In­sur­ance con­tracts–$5.3 bil­lion;

�2 Debt se­cu­ri­ties is­sued–$4.9 bil­lion. This is the val­ue of the re­deemable pref­er­ence shares

�2 Due to re­lat­ed par­ties–$1.77 bil­lion;

�2 Mu­tu­al fund li­a­bil­i­ty–$1.5 bil­lion;

�2 Bor­row­ings–$407 mil­lion

CLI­CO's TO­TAL LI­A­BIL­I­TY (2010 au­dit)–$27.1 bn.

Ac­cord­ing to an ex­trap­o­la­tion of Cli­co's bal­ance sheet, its li­a­bil­i­ties now ex­ceed its as­sets by $8.6 bil­lion.

If the Gov­ern­ment's re­deemable pref­er­ence shares (ref­ered to as debt se­cu­ri­ties is­sued) with a nom­i­nal val­ue of $4.9 bil­lion are for­mal­ly con­vert­ed in­to 49 per cent of Cli­co's eq­ui­ty, the in­sur­ance com­pa­ny's bal­ance sheet deficit is re­duced to $3.7 bil­lion.

If the $1.77 bil­lion that Cli­co owes to re­lat­ed par­ties is re­moved from the bal­ance sheet, the deficit is re­duced to $2 bil­lion.

It seems ob­vi­ous that in­stead of pay­ing the share­hold­ers of CL Fi­nan­cial for their 51 per cent stake in Cli­co, the Gov­ern­ment should give se­ri­ous con­sid­er­a­tion to swap­ping $5 bil­lion of its $12.6 bil­lion in in­vest­ment con­tract li­a­bil­i­ties on Cli­co's bal­ance sheet for a 51 per cent stake in the in­sur­ance com­pa­ny.

In that way, the tax­pay­ers would own 100 per cent of Cli­co; the com­pa­ny would have pos­i­tive eq­ui­ty of $3 bil­lion and the Gov­ern­ment would still have a claim of $7.6 bil­lion over the rest of CL Fi­nan­cial's as­sets.

Pay­ing the CL Fi­nan­cial share­hold­ers cash would be ex­cep­tion­al­ly un­pop­u­lar with T&T tax­pay­ers, giv­en the fact that the ma­jor­i­ty share­hold­er of CL Fi­nan­cial is Lawrence Duprey, who while he may be cling­ing on to hope for re­demp­tion, is wide­ly blamed for the dis­rup­tion caused by the col­lapse of the group.

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