Don't sell your units. That's the advice that Peter Permell, spokesman for the Clico Policyholders Group (CPG), has offered to members as they engage in the process of coverting their bonds into units in the Clico Investment Fund (CIF). He said bondholders can sell their one to ten-year bonds if they need money, but urged them not to sell their 11 to 20-year bonds.
"It's a no-brainer, but there are different strokes for different folks. Recommendation: Don't sell your units. Treat them as if they were a fixed deposit that matures in ten years, pays interest at approximately 3.5 to four per cent per annum in two instalments twice for the year, with very little real downside risks.
"In real terms, significant upside potential is capital appreciation for growth of your investment," said Permell, who spoke to CPG at Capital Plaza Hotel, Wrightson Road, Port-of-Spain yesterday in a session aimed at explaining the CIF for unitholders of 11 to 20-year zero-rated bonds, launched by Government on November 1.
Permell alerted CPG members present, who numbered about 40, about net asset value (NAV) as a term they should become familiar with. He explained NAV as the final figure after liabilities have been netted off the assets of the CIF. "So the NAV of your units, at this point in time, is $25. That is going to change, depending on the value of the underlying assets: 86 per cent of RBL shares and 14 per cent of government bonds at 4.25 per cent coupon," he said.
Trading in units in CIF on the T&T Stock Exchange will begin on January 2, 2013, ten business days after the Government's offer of converting bonds into units expires on December 14, 2012. Permell said if unitholders were to sell their one to 20-year bonds to a financial institution, the bonds will be discounted by 39.34 per cent, so they will get roughly 60 cents on the dollar, which, he said, makes no financial sense.
He said the Government has acquired the 40-odd million RBL shares that formally belonged to Clico. "This is not any gift they are giving to us. These RBL shares were formally owned by Clico." He said the Government transferred those RBL shares into the CIF, but policyholders had no access to them as the insurance companies were under the control of Central Bank.
"They have now freed up those RBL shares and transferred them to the CIF. They put in a safeguard to ensure that the RBL shares of other RBL shareholders were not affected, so they created a trust. We do not have immediate access to RBL shares, but we will have access in ten years' time. "An example would be putting your money for your children in a trust until they turn 18 when they can access that money," Permell said.
He asked policyholders to imagine what would happen to RBL shares if those newly-acquired bank shares were sold on the stock market in January 2013, resulting in a flood of RBL shares being available, which would impact the RBL share price, and negatively affect existing RBL shareholders.
"So it's a good thing, in everybody's best interest to have it set up like that," Permell said, adding, "We know at the end of ten years, we are going to be bonafide RBL shareholders. Permell said the Government, which has valued the CIF as of October 31, 2012, at $5.1 billion, has offered 204 million units to 11 to 20-year bondholders.
"No one else is eligible to access these units at this point in time. The only people who can access these units are persons who hold 11 to 20-year bonds," Permell said. He said those who had sold their 11 to 20-year bonds and hold only their one to ten-year bonds cannot access units in CIF. He said the face value of those bonds would be used to calculate how many units they get.
"So for every $1,000 worth of government bonds, you will get 40 units on conversion. Permell explained to CPG members at the meeting how their acceptance of the units works. "Those bonds are being redeemed because when the Government gives you units, they no longer have a liability on their balance sheet in respect to those bonds. As it stands now, they do have a liability to pay you year 11, 12 and so on.
"Once those bonds are redeemed by the Government, that liability comes off their balance sheet. That's a win-win for the Government, taxpayers and bondholders because the Government reduces its overall debt by $5.1 billion once all those units are taken up. You now have a negotiable instrument." Permell told the CPG partial subscription of their bonds will not be permitted.
"So you can't say I only want years 11 and 12 or years 19 and 20. You have to redeem all your bonds. That's the only way you can access the offer." Permell said companies will also be accessing the bonds. "Interestingly, executive flexible premium annuities (EFPA) were issued to companies. Don't ask me how that was done, but that is a fact."
He said if one's unitholding is in excess of 16 per cent of the total asset base of CIF, it won't be allowed because only up to 16 per cent will be registered for any single unitholder, plus related parties.
