An­tho­ny Wil­son

From all in­di­ca­tions, the State will ful­ly es­tab­lish a com­pa­ny called Atrius to suc­ceed Cli­co, the in­sur­ance com­pa­ny es­tab­lished by Cyril Duprey and Cyril Mon­san­to in the depth of the glob­al de­pres­sion in the 1930s.Atrius, it seems, would be es­tab­lished with a fair­ly small bal­ance sheet–hinged around the $5.3 bil­lion in in­sur­ance li­a­bil­i­ties that were on Cli­co's bal­ance sheet as at its last au­dit in 2010. The Ex­ec­u­tive Flex­i­ble Pre­mi­um An­nu­ities, which were sold as in­sur­ance poli­cies and backed by as­sets in Cli­co's statu­to­ry fund, were re­clas­si­fied as in­vest­ment se­cu­ri­ties in 2010, which has eased by some $11.5 bil­lion the pres­sure on the statu­to­ry fund.

The Atrius in­sur­ance li­a­bil­i­ties would be matched in the main by two as­sets: the $4.4 bil­lion in Gov­ern­ment bonds that Cli­co re­ceived as pay­ment for 40 mil­lion Re­pub­lic Bank shares it sold to the State in No­vem­ber 2012 and the bal­ance of Cli­co's Re­pub­lic Bank shares–some 11 mil­lion shares which are worth $1.2 bil­lion. There are in­di­ca­tions that the new in­sur­ance com­pa­ny will re­ceive $2 bil­lion in work­ing cap­i­tal from the State.This would leave the State with a claim of over $22 bil­lion on CL Fi­nan­cial's non-Cli­co as­sets, which it is im­pos­si­ble to place a val­ue on giv­en the fact that CL Fi­nan­cial has not pub­lished an an­nu­al au­dit­ed fi­nan­cial re­port since 2007.One sus­pects that the State will adopt the BWIA/CAL mod­el in form­ing the new com­pa­ny, with the ma­jor dif­fer­ence be­ing that the State's claim is like­ly to be sat­is­fied from the as­sets of Cli­co–large­ly Methanol Hold­ings (Trinidad) Ltd and MHTL's Oman-based sis­ter com­pa­ny–both of which are 56 per cent owned by Cli­co.

Last week, in this space, a sim­ple, el­e­gant and fair method was out­lined that would en­sure that the Gov­ern­ment gains con­trol of the 51 per cent of Cli­co that is owned by the share­hold­ers of CL Fi­nan­cial with­out pay­ing them one cent.This so­lu­tion would en­sure that Atrius, the new en­ti­ty that will suc­ceed Cli­co, is 100 per cent owned by the State and starts life with a clean bal­ance sheet with as­sets in ex­cess of an es­ti­mat­ed $18.3 bil­lion and li­a­bil­i­ties of about $15.4 bil­lion.

At in­cep­tion, there­fore, Atrius would have net worth (which is the com­pa­ny's to­tal as­sets mi­nus its to­tal li­a­bil­i­ties) of about $3 bil­lion, while Cli­co would have end­ed its sto­ried ex­is­tence with neg­a­tive net worth of over $9 bil­lion.

That's be­cause, ac­cord­ing to Cli­co's 2010 au­dit, the in­sur­ance com­pa­ny had li­a­bil­i­ties of $27.1 bil­lion (main­ly com­pris­ing Gov­ern­ment li­a­bil­i­ties of $19 bil­lion) and as­sets of $17.3 bil­lion. The State would al­so be left with a claim of $9 bil­lion over CL Fi­nan­cial's non-Cli­co as­sets.

Ac­cord­ing to Cli­co's 2010 au­dit, three of the four largest li­a­bil­i­ties on the in­sur­er's books are:

�2 $12.6 bil­lion in in­vest­ment con­tracts (a to­tal of 90 per cent from the EF­PAs);

�2 $4.9 bil­lion in debt se­cu­ri­ties (which com­prise the ful­ly paid re­deemable pref­er­ence shares the State in­vest­ed in Cli­co in 2009 and 2010); and

�2 $1.5 bil­lion in mu­tu­al fund oblig­a­tions.

This means that of $20 bil­lion that the Gov­ern­ment has spent bail­ing out CL Fi­nan­cial, $19 bil­lion (or 95 per cent) can be ac­count­ed for by the in­vest­ment con­tracts, re­deemable pref­er­ence shares and mu­tu­al funds oblig­a­tions on Cli­co's bal­ance sheet.Start­ing Atrius off on a strong foot­ing could be achieved by con­vert­ing $10 bil­lion of the $19 bil­lion in gov­ern­ment li­a­bil­i­ties on Cli­co's bal­ance sheet in­to 100 per cent own­er­ship of Atrius and by wip­ing off $1.7 bil­lion in the debt that Cli­co owes to re­lat­ed par­ties. Such a move would re­duce Cli­co's li­a­bil­i­ties by $11.7 bil­lion from $27.1 bil­lion to $15.4 bil­lion.

Con­vert­ing $10 bil­lion in gov­ern­ment li­a­bil­i­ties on Cli­co's bal­ance sheet in­to eq­ui­ty in the com­pa­ny would ob­vi­ous­ly cut the Gov­ern­ment's $20 bil­lion claim on CL Fi­nan­cial in half. But what would be achieved is State own­er­ship of the Cli­co crown jew­el, Methanol Hold­ings (Trinidad) Ltd and its Oman-based sis­ter com­pa­ny, Methanol Hold­ings (In­ter­na­tion­al) Ltd, which could be sold to T&T in­vest­ment in­sti­tu­tions and in­di­vid­u­als af­ter the State has ne­go­ti­at­ed a set­tle­ment with the Ger­man mi­nor­i­ty share­hold­ers of those com­pa­nies.

Al­so ripe for as­set re­cov­ery by the State would be CL World Brands, the UK-based drinks com­pa­ny, which is sit­ting on US$146 mil­lion in cash from the sale of its 71 per cent stake in Burn Stew­art, the Scot­tish whiskey pro­duc­er. Cli­co owns 42 per cent of CL World Brands, which it­self owns 44.9 per cent of An­gos­tu­ra.

An­gos­tu­ra's debt for eq­ui­ty?

At the An­gos­tu­ra an­nu­al gen­er­al meet­ing on April 29, which I at­tend­ed as a share­hold­er, the is­sue of the $984 mil­lion re­ceiv­able that CL Fi­nan­cial owes An­gos­tu­ra was raised by sev­er­al of the share­hold­ers dur­ing the ques­tion and an­swer pe­ri­od.An­gos­tu­ra chair­man, Ger­ry Yet­ming, told the share­hold­ers that CL Fi­nan­cial had ac­knowl­edged the debt and that both sides were work­ing to­wards a so­lu­tion.In a dis­cus­sion with fel­low An­gos­tu­ra share­hold­er that af­ter­noon, the fol­low­ing idea came to me that the State may wish to con­sid­er:

�2 CL World Brands owns 92.5 mil­lion shares in An­gos­tu­ra, which at to­day's price is worth $832.5 mil­lion;

�2 In­stead of leav­ing this re­lat­ed par­ty re­ceiv­able on An­gos­tu­ra's books or the State at­tempt­ing to sat­is­fy the debt to An­gos­tu­ra by cash, a non-cash ap­proach would be to trans­fer the CL World Brands shares in An­gos­tu­ra in full sat­is­fac­tion of the re­ceiv­able and for those shares to be re­tired;

�2 In ef­fect, this would re­duce An­gos­tu­ra's is­sued share cap­i­tal by 44.5 per cent to 113.2 mil­lion shares, which would au­to­mat­i­cal­ly make the oth­er shares more valu­able;

�2 It would make Cli­co, which has 66.9 mil­lion shares in An­gos­tu­ra (which cur­rent­ly has 206 mil­lion shares in is­sue) the largest share­hold­er at 59 per cent. If there is con­cern about Cli­co's large hold­ing of shares in An­gos­tu­ra, Cli­co can sell down its po­si­tion to be­low 30 per cent.

�2 This debt-for-eq­ui­ty swap solves sev­er­al prob­lems at the same time:

1) It takes $984 mil­lion in debt off the books of CL Fi­nan­cial, and would re­duce the group's debt to the State by that amount;

2) It en­hances the val­ue of Cli­co's stake in An­gos­tu­ra;

3) Cli­co gets cash from sell­ing down its stake in An­gos­tu­ra from 59 per cent;

The debt-for-eq­ui­ty swap could take place af­ter the sale of Hine and fol­low­ing the Gov­ern­ment's ex­trac­tion of the val­ue out of CL World Brands.

Cash for CL Fi­nan­cial?

Along­side the start up of Atrius are the ne­go­ti­a­tions that are tak­ing place be­tween the Gov­ern­ment and the CL Fi­nan­cial share­hold­ers.In a March sto­ry in the Sun­day Ex­press, Fi­nance Min­is­ter Lar­ry Howai said that the Gov­ern­ment was con­sid­er­ing ac­quir­ing the shares of Cli­co's par­ent com­pa­ny CL Fi­nan­cial, which is ma­jor­i­ty owned or con­trolled by the group's for­mer ex­ec­u­tive chair­man Lawrence Duprey."We can pur­chase the shares for what­ev­er they may be worth. I am as­sum­ing they won't be worth much, and then we run the com­pa­ny legal­ly, as op­posed to a par­tial own­er," he told the Sun­day Ex­press in an in­ter­view last week.

Ac­quir­ing 100 per cent of CL Fi­nan­cial was one of three op­tions that the Gov­ern­ment was con­sid­er­ing as part of its over­all ex­it strat­e­gy from CL Fi­nan­cial. The oth­er op­tions would be to ap­point a re­ceiv­er to re­cov­er sums owed, or to ex­it the com­pa­ny with a loan-like arrange­ment for spe­cif­ic sums to be paid with in­ter­est month­ly, backed by cer­tain se­cu­ri­ties.

It is quite like­ly that pay­ing the CL Fi­nan­cial share­hold­ers for their stake in the failed group would be ex­treme­ly un­pop­u­lar and would at­tract neg­a­tive po­lit­i­cal and le­gal reper­cus­sions, as it would mean that the share­hold­ers would be re­ceiv­ing 100 per cent of the val­ue of their in­vest­ment in CL Fi­nan­cial, while the pol­i­cy­hold­ers and in­vestors in the Cli­co and British Amer­i­can mu­tu­al funds would have re­ceived be­tween 80 and 92 per cent.

Dis­clo­sure: The au­thor of this com­men­tary owns shares in An­gos­tu­ra.