A lit­tle over one year ago, on Sep­tem­ber 8, 2010, Fi­nance Min­is­ter Win­ston Dook­er­an stood up in Par­lia­ment dur­ing his pre­sen­ta­tion of the 2011 bud­get and pro­posed a res­o­lu­tion of what he de­scribed as the Cli­co fi­as­co that in­volved pay­ing off the hold­ers of short-term in­sur­ance poli­cies and mu­tu­al funds whose in­vest­ments ex­ceed­ed $75,000 by way of "a Gov­ern­ment IOU amor­tised over 20 years at ze­ro in­ter­est." The pro­pos­al, which would have re­sult­ed in the large in­vestors in Cli­co and British Amer­i­can be­ing paid in equal an­nu­al in­stal­ments at ze­ro in­ter­est rate over 20 years, would have meant a "hair­cut" of about 35 per cent for all those hold­ers of short-term poli­cies and mu­tu­al funds seek­ing to re­deem their in­vest­ments im­me­di­ate­ly. It is safe to say that Min­is­ter Dook­er­an's orig­i­nal pro­pos­al, which was part of the bud­get pack­age that re­ceived unan­i­mous ap­proval from Par­lia­ment, did not find favour with a sig­nif­i­cant per­cent­age of the hold­ers of Cli­co and British Amer­i­can short-term poli­cies and mu­tu­al funds.

Many of those with a vest­ed in­ter­est in the poli­cies or mu­tu­al funds would have de­scribed as con­fis­ca­to­ry and penu­ri­ous the Gov­ern­ment's com­bi­na­tion of ceas­ing the pay­ment of in­ter­est on the Ex­ec­u­tive Flex­i­ble Pre­mi­um An­nu­ities along with a pay­off over 20 years at no in­ter­est (with a 35 per cent dis­count for im­me­di­ate cash). It ap­pears that the Gov­ern­ment was not com­plete­ly deaf to the pleas of the pol­i­cy­hold­ers and it would even­tu­al­ly have come to the re­al­i­sa­tion that T&T's fi­nan­cial sys­tem would nev­er re­gain com­plete sta­bil­i­ty with­out a res­o­lu­tion to this is­sue that was more ac­cept­able to a ma­jor­i­ty of the hold­ers of Cli­co and British Amer­i­can poli­cies and mu­tu­al funds. In tabling the Pur­chase of Cer­tain Rights and Val­i­da­tion Bill in Par­lia­ment on Wednes­day, Mr Dook­er­an may fi­nal­ly have come up with a for­mu­la that a ma­jor­i­ty of those with mon­ey in­vest­ed in the two failed in­sur­ance com­pa­nies may be able to live with.

In ef­fect, Mr Dook­er­an's new pro­pos­al com­bines the main el­e­ments of his orig­i­nal pro­pos­al with an idea that was first float­ed in the pages of the Busi­ness Guardian.

The in­vestors will re­ceive a com­bi­na­tion of ze­ro-coupon bonds (which they will be able to cash in im­me­di­ate­ly, re­ceiv­ing 80 per cent) and shares in what is be­ing called NEL 2, an in­vest­ment hold­ing com­pa­ny whose main un­der­ly­ing as­set will be Cli­co's 51.7 mil­lion Re­pub­lic Bank shares. It is es­ti­mat­ed that the Cli­co in­vestors will re­ceive full re­cov­ery (100 per cent) of their in­vest­ment re­lat­ed to NEL 2 and when com­bined with the 80 per cent from the bonds, the to­tal re­ceived would be up­wards of 90 per cent.

In ex­plain­ing the pro­pos­al, Mr Dook­er­an said: "In­vestors who con­tin­ue to re­ceive an­nu­al 20-year bonds, the fa­cil­i­ties for dis­count­ing their bonds of ma­tu­ri­ty up to ten years will re­main un­changed.

"It is ex­pect­ed that the dis­count­ing rate would be in the or­der of 80 cents (on every dol­lar), re­sult­ing in a hair­cut for the first ten years of 20 per cent. "Bonds with a ma­tu­ri­ty of 11 to 20 years may be ex­changed for units in NEL 2 at a rate of dol­lar for dol­lar. "This means that the to­tal re­turn for the in­vestor would com­prise 80 cents (on the dol­lar) on bonds with ma­tu­ri­ty from one to ten years and 100 cents on the dol­lar for the longer-term bonds through the NEL 2 mech­a­nism. "On this ba­sis the av­er­age re­turn would be in the or­der of 92 cents on the dol­lar, a sig­nif­i­cant in­crease over the 67 cents on the dol­lar im­plied by the orig­i­nal plan."

There is no doubt that a re­turn of 92 cents on each dol­lar of in­vest­ment, while it rep­re­sents a loss to in­vestors, is a su­pe­ri­or of­fer to the re­turn of 65 cents on the dol­lar orig­i­nal­ly en­vis­aged by the Min­is­ter of Fi­nance. Mr Dook­er­an needs to en­sure that the de­tails of this pro­pos­al are prop­er­ly com­mu­ni­cat­ed to the pop­u­la­tion and that all of the pos­si­ble pol­i­cy­hold­er ques­tions will be an­swered.