On Thursday, the 150-page decision of the tribunal established by ICC International Court of Arbitration to look into the complaint brought by the minority shareholders of Methanol Holdings (Trinidad) Ltd (MHTL) was received in T&T.
The tribunal, which took more than three years to complete its work, placed a value of US$1.175 million on MHTL, a company that was established 15 years ago, following the amalgamation of several methanol companies that were owned by CL Financial and its German partners.
1) How does the award affect theresolution of the CL Financial matter?
The Government was expecting an award in the region of US$1.8 billion ($11.4 billion), officials close to the process told the Business Guardian earlier this year.With $11.4 billion from the sale of MHTL, the Government could have recovered a significant percentage of the money owed to taxpayers without too much heavy lifting.
That might have involved only the sale of Clico's traditional portfolio of insurance assets, along with the disposal of the 11 million Republic Bank shares held by Clico and a few other assets.
The fact that the arbitration tribunal has only valued MHTL at $7.4 billion means that either much more of the CL Financial empire would have to be sold to satisfy the group's debt to the Government or the new shareholders' agreement between the Government and CL Financial will have to be for longer than either side expected.
According to a government official close to the process: "This decision could significantly change our computations of full recovery and will now require some hard negotiations with the shareholder group and some hard decisions."The Government can recover up to $20 billion from the sale of CL Financial assets, but that would leave very little for the shareholders of the group who have insisted that they are entitled to recover some value from their shareholdings.
In other words, if the Government pushes too hard to recover up to $20 billion as soon as possible, the entire resolution could become bogged down in legal challenges.
But if the Government does not push hard enough to recover value from the CL Financial empire, taxpayers would feel deprived if not cheated–and there may be political consequences if the CL Financial shareholders are seen laughing all the way to the bank, while the taxpayers wait years for full recovery from the disposal of group assets.In any event, the timetable for the completion of the new shareholders' agreement began to tick when the award was received.
The last time the shareholders' agreement was extended, it was until the end of December or three months after the receipt of the decision of the arbitration tribunal.Sources close to Minister of Finance Larry Howai say the team of T&T attorneys representing the State, Clico and CL Financial are reviewing the 150-page decision over this weekend.
The lawyers have been asked to review the decision in detail and provide their advice on the options as the minister hopes to be in a position to make a full statement on Tuesday.
2) Is US$1.175 million a fair value for MHTL?
On Friday, an official close to the arbitration process described the valuation placed of MHTL as "substantially below true market value."It is easy to criticise the valuation arrived at by the arbitration tribunal, if one is seeking the interest of T&T and its nationals.
But the three arbitrators sat on this matter for more than three years, heard arguments and read valuation reports from both sides, weighed those arguments and reports and after what seemed like careful consideration, from March to July, delivered their decision.
The merit of the Government's view that the valuation the arbitrators arrived at is "substantially below true market value," is difficult to assess because determining the market value of a methanol company that is not publicly traded is complicated as it involves assumptions about future cash flows, production and profits.
Most valuations of companies involve looking at recent transactions in the same industry. This is difficult in this case because not too many methanol companies the size of MHTL have been sold in the last ten years, so there is not a huge list of transactions to which the valuation of MHTL can be compared.Determining the value of a publicly traded company is much easier because the stock market does that on a second-by-second basis.
Interestingly, Vancover-based Methanex, which competes with MHTL in markets around the world, had a market capitalisation of US$6.55 billion ($41.26 billion) at the close of trading on Friday. Methanex operates two plants at the Point Lisas Industrial Estate, Titan, which it owns 100 per cent and Atlas, which it owns 63.1 per cent.
In 2013, Methanex sold 7.9 million tonnes of methanol: producing 4.3 million tonnes, selling 2.7 million tonnes of methanol that it purchased and reporting commission sales of 920,000 tonnes. Their commission sales include the 36.1 per cent of the Atlas plant that is owned by BP.
Methanex with sales of 7.9 million tonnes of methanol was worth US$6.55 billion on Friday. MHTL comprises a complex of five methanol plants at Point Lisas with a total capacity of more than four million tonnes per year as well as 1.48 million tonnes per annum of urea ammonium nitrate (UAN) and 60,000 tonnes per year of melamine.
Even if one assumes that MHTL's sales of UAN and melamine have absolutely no value, the four million tonnes that MHTL produces should give it a market capitalisation of at least half of 7.9 million tonne-selling Methanex.That would bring the back-of-the-envelope value of MHTL to at least US$3.275 billion, which is close to a third less than the actual US$1.175 billion price arrived at by the arbitrators.
How the tribunal arrived at such a low value for MHTL is indeed an interesting issue. indeed.Also, given the demand for methanol by the Chinese, there is little doubt that if MHTL were placed on the international market that it would fetch substantially more than US$1.175
3) Can the Government appealor challenge the decision?
The award of the tribunal established by the ICC Court of Arbitration is considered to be a binding and final decision and one that is subject to enforcement worldwide.The Government, CL Financial and Clico would have entered the process knowing that the award of the tribunal would have been final and binding.According to the Court of Arbitration's Web site: "There is generally no appeal at all permitted from an arbitral tribunal's award in an international arbitration.
"The result is absolutely final, subject only to a request to set aside the award due to procedural irregularities such as an unfair procedure or arbitrator lack of independence."
There is an international agreement that governs the enforceability of arbitration awards. It's called the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The Convention provides for the enforcement of arbitration agreements and for the recognition and enforcement of awards in all contracting states.T&T became a contracting state in 1966.
Among the established grounds for appealing an arbitration award is if it can be proven that the award was procured by corruption, fraud, or undue means or if there is no factual or reasonable basis for the award.It is difficult to conceive that there is no factual or reasonable basis in a decision that is 150-pages long, delivered after three years.
4) What will the minority shareholders do?
The minority shareholders may have got a "steal of a deal" as the Guardian headlined the story yesterday. But, for them to operate the Point Lisas complex successfully, they obviously need the cooperation of the Government in general, and state-owned National Gas Company in particular.Who wants to operate a $15 billion complex if the supply of natural gas becomes even more unpredictable in these times of gas curtailment?No one wants to win the battle, while losing the war.