Clico ‘trust’ issues for Finance Minister

There’s much that could be said and much that has already been said about Finance Minister Larry Howai’s maiden 2012-2013 Budget presentation, both positive and negative. However, on this occasion, due to the constraints of space, the members of Clico Policyholders Group (CPG) will confine our observations and comments specifically to the Clico Investment Fund.

In this regard, we first wish to acknowledge the efforts of the new Finance Minister to try to bring resolution to the Clico issue in so far as settling the liabilities of the thousands of policyholders who have accepted the Government’s revised offer in good faith. During his Budget statement, the Finance Minister announced inter alia the following:

The Clico Investment Fund shall be launched on November 1, 2012. Trading will begin on January 2, 2013 on the Trinidad and Tobago Stock Exchange (TTSE) for the units of those people who exchanged their 11-20 year bonds for units in the Clico Investment Fund. The income generated by the Fund to be tax-exempt in the hands of investors, in keeping with arrangements in place for similar Funds.

However, while the Minister has now clearly established a definite time-frame for the roll-out of the fund, his announcement was conspicuously short on detail. It is therefore the CPG’s expectation that within the coming days the honourable Minister will publish either a prospectus or an information memorandum which would clearly outline all the necessary details pertaining to the fund and the process by which it can be accessed.

Accordingly, there are six critical issues we wish to red-flag very early, this will ensure that everyone is on the same page and assist with final tweaking of the document so as to avoid any unnecessary problems going forward. They are as follows:

1. The specific legal personality of the entity needs to be accurately stated. Is it an “investment fund” or is it an “investment trust?” This issue will have certain implications with respect to ownership and control of the fund. In the case of the latter even though the entity would be 100 per cent wholly-owned by the unit-holders, they would not be able to participate in the decision-making process of the organisation since this would be the exclusive remit and at the sole discretion of a Government-appointed trustee.

Unit-holders would therefore only be able participate in the ownership but not in the control of their own organisation. Because “units” unlike “shares” in a company do not carry with them voting rights or the ability to have a say in the decision-making process of the organisation relative to one’s holdings.

2. The “conversion price” (ie the price at which the units would be exchanged for the bonds) should be calculated on the basis of the Republic Bank share price as at December 1, 2011, the date of the Government’s revised offer. This is to ensure that the unit-holder does not lose a further 10 per cent of his/her investment due to the tardiness in implementing the fund and consequent speculative movement in the Republic Bank share price since the revised offer opened last year (ie from $96.28 on December 1, 2011 to $106.40 as at October 4, 2012.)

3. The “conversion period” for the units should be for a minimum period of at least 6 months at the above conversion price. This will accommodate all the logistical and administrative issues relative to the 15,000 plus 11-20 year bondholders applying to convert their bonds to units, inclusive of those bondholders who may be out of the jurisdiction.

4. Arrangements should be put in place to ensure that any stock-brokerage charges that would normally be for the account of the unit-holder on the sale of his/her units on the TTSE should be waived on the initial sale only. This is to ensure that the unit-holder benefits from 100 per cent of proceeds from the sale of his/her units.

5. The Minister must give a firm commitment to ensure that notwithstanding any administrative delays in the transfer of the 51,858,299 Republic Bank Ltd shares, the final dividend for the Bank year ending September 30, 2012, not yet declared but payable on December 3, 2012, on these shares, will be credited to the fund for the benefit of unit-holders.

6. The Fund or Trust should be liquidated, dissolved or wound up no later than seven years after its commencement on November 1, 2012, and the proceeds from such liquidation, dissolution or winding up must be distributed forthwith to unit-holders pro rata to the number of units held by them, respectively.  

Peter Permell
Chairman