With signatures on two share transfer forms, Clico and CL Financial on Thursday officially sold their 56.53 per cent stake in Methanol Holdings (Trinidad) to Consolidated Energy Ltd for US$1.175 billion, bringing an end to an arbitration battle that began in 2012.
When attorneys from JD Sellier & Co, who represented the interests of Clico and CL Financial, handed over the signed transfer forms to Proman director David Cassidy and attorneys from M Hamel-Smith & Co, it marked another ending: the insurance company's involvement 27-year involvement in the methanol industry.
In his 2008 book titled "Trinidad and Tobago Industrial Policy 1959-2008," former Finance Minister and current chairman of the Unit Trust Corporation, Wendell Mottley, outlines how Clico became the first local private sector company to venture into ownership of a world-scale downstream petrochemical plant on the Point Lisas industrial estate.
According to Mottley: "At the end of the oil boom in 1986, Clico had a major problem. The company had invested policyholders' funds in residential and commercial mortgages, but the ensuing depression had severely impaired the company's mortgage portfolio, writing new business had become difficult and there was also a dearth of other investment opportunities.
"The depression deeply scarred the entire domestic financial sector, leading to Central Bank intervention in several institutions. The mood among surviving institutions was to hunker down and wait out the depression."Not so with Clico."Mottley sketches how Lawrence Duprey began looking in directions previously thought to be outside the purview of the domestic private sector.
Mottley states that the idea to study the feasibility of a private sector-led methanol plant actually began with a group of foreign investors led by Imperial Chemical Industries (ICI), the storied British chemical company that was bought out and broken up in 2008.That initial spark of interest, Mottley writes, led to the establishment of a company called the Caribbean Methanol Company (CMC) that negotiated its natural gas contract with State-owned gas supplier National Gas Company in 1987-88.
The Caribbean Methanol Company (CMC) plant was commissioned in October 1993 at a total project cost of US$200 million, which was "approximately financed by 64/36 debt to equity."It is noteworthy that Clico owned 64.9 per cent of the shareholding in CMC, which means that the local insurance company had to find US$46 million.
At the start of production of CMC, which was considered a medium-sized methanol plant with a rated annual capacity of 500,000 metric tonnes, Clico's partners were Ferrostaal of Germany and Methanex of Canada, which owned 25.1 per cent and 10 per cent respectively.
Mottley suggests that Proman, who he calls a "small German construction company," was one of the original members of the investor group and that Proman "drew on its connections with Ferrostaal," described as a large German trading group, to have it serve as EPC contractor.
The initial investment in CMC led to another investment in Methanol IV, which was commissioned in April 1998, with a capacity of 550,000 tonnes and with Clico, Ferrostaal, Helm and GE Capital Group as the equity shareholders.
Mottley states that the first Manning administration, from 1991 to 1995, embarked on a programme of privatisation in the early 1990s, the primary motive for which was "pragmatic nd not ideological."The CMC plant had a and the plant commenced commercial production in 1993.The year after the commissioning of CMC, in 1994, the Government divested 31 per cent of its holdings in the TTMC 1 plant to the German consortium of Ferrostaal/Helm.
Methanol capacity was further expanded when the TTMC II plant came on stream in 1996 with the Government and Ferrostaal/Helm holding owning 69 per cent and 31 per cent of the shareholding respectively, according to the speech by Conrad Enill, the then Minister of Energy at the official commissioning of the AUM complex in October 2009.
In 1999, Methanol Holdings (Trinidad) Limited (MHTL) was established to consolidate the shareholding and overall management of the TTMC, the Caribbean Methanol Company Limited (CMC) and the Methanol IV Company Limited (MIV).With the addition of the new M5000 plant which is directly owned by MHTL the combined production capacity is now over 4 million metric tonne per annum.
Despite his flaws, and how it all unravelled, I would think that the former CL Financial executive chairman Lawrence Duprey has every right to feel a tremendous sense of pride in his contribution to making MHTL one of the largest exporters of methanol in the world.That fact, and the fact that he was the first, and remains the only, citizen of this country to use local savings to fund a significant ownership stake in the country's most important sector, must be part of the Duprey record.
That thought leads to two reflections:
�2 It is tragic for the long-term development of this country that no Trinidadian followed the path that Mr Duprey cut when he put at risk the capital of the Clico (and later CL Financial) shareholders nearly 30 years ago;
�2 It borders on tragedy that Mr Duprey had no one in his inner circle who was capable of restraining his hubristic overexuberance, especially in 2008, when there were clear signs that the global economy was in bubble mode.
It is interesting to note that MHTL owns five methanol plants and an AUM complex comprising seven plants, which would have generated billions in revenues and profits (along with hundreds of high-paying jobs) since the establishment of the group 15 years ago.
It is also noteworthy that Moody's September 29 analysis of notes issued by a subsidiary of Consolidated Energy Ltd describes MHTL as a "leading methanol and fertiliser producer...with reported revenues of US$1.7 billion over the last 12 months ended June 31, 2014.
While it is water under the bridge, one really has to wonder about the reality of the valuation of US$1.175 billion on MHTL arrived at by the tribunal in London, especially when one considers that the construction cost of the five methanol and seven AUM plants was about US$3 billion, the 2014 cost of replacing all 12 plants would be close to US$6 billion and MHTL probably generated between US$300 and US$400 million in profits in the 12-month period ending June 30, 2014.
But the closure of the MHTL chapter in the Clico book at least brings some clarity to the resolution of the collapse of the insurance company and its parent, CL Financial, 70 months ago (five years and 10 months).It is understood that the Towers Watson valuation of Clico's traditional insurance portfolio has been completed and has been received by Clico managing director Carolyn John and the folks at the Central Bank.
That valuation, one assumes, is more reflective of the real world than the arbitration tribunal's and should generate bids of between TT$500 and $1 billion for a portfolio that has assets of between $8 and $9 billion.A final reckoning of the Clico traditional portfolio leaves Republic Bank as one of the major imponderables in the Government recovering the approximately $20 billion of taxpayers' funds that has been used to save the T&T financial system from collapse.
Whether the Government seeks to monetise as soon as possible the 51 per cent stake in Republic Bank that is owned by the CL Financial group, of course, is up to Cabinet.