Figuring it out

“We are not serious,

Very few conscious,

So I cannot agree wid mih own chorus!”

from ‘Trinidad is Nice, Trinidad is a Paradise’ by Brother Valentino (Emerol Philips)

The 12th June agreement is to be voted on by CL Financial’s shareholders on Wednesday 15th July.  By the time this is published, there ought to have been a decisive vote on the matter.

I maintain my position that the 12th June agreement is taking us in a completely different direction to that outlined in the original MoU of 30th January.  I am also saying that the new direction is a detrimental one for this country with not even an attempt being made to explain the underlying rationale.

The flagship of the CL Financial group was CLICO, according to the Central Bank Governor, on 13th February – “In the CL Financial business model, Clico was a major source of cash much of which was used to finance investments held in the name of other entities in the Group.  In this model, Clico has ended up as guarantor for many of the Group’s assets most of which are heavily pledged.”  CLICO’s most successful product in this model was a high-interest one which promised more than any other investment available in the market.  Even at those high rates of interest promised to their investors, it was cheaper for CL Financial to raise funds in this way than to borrow.

CL Financial is no longer able to rely on CLICO for a source of cheap funds, so we are all thrust into a new, perilous position.

CLICO is now unable to offer the highest rates of return which once distinguished its products and is suffering an unwelcome migration of its better sales agents.  What future for CLICO?

We were often regaled with stories of Lawrence Duprey’s prowess, as a commercial negotiator, in securing the best terms.  It seems to me that CL Financial has arranged a new line of finance from the Treasury to go forward.  We are not told what, if any, interest rate is being charged by our Treasury for this massive line of unsecured borrowing.  Overdue Tax payable to the BIR attracts a punitive interest rate of 20% per annum, being rightly regarded as the taxpayers’ unsecured borrowings from the Treasury.  Are we seeing a plain case of double-standards?

As part of the new agreement, Lawrence Duprey has resigned from his Directorships of the companies in the CL Financial group.  He has retained his significant shareholding and it is clear that Michael Carballo, the group’s finance director, continues as his representative.

Some of you may think this is all OK, since the public funds being advanced to clean up this fiasco are ultimately protected by CL Financial’s agreement to sell assets so as repay.  Time to think again.  The assets which were pledged in the original MoU, were already pledged elsewhere.

Yes, the CL Financial chiefs tried to sell the same thing twice.

But what about the assets which were not pledged?  Oh, those were treated differently.  For example, CL Financial agreed to sell its majority shareholding in CLICO Energy Company less than a week after agreeing to seek the State’s prior written approval to any asset sales.  That action triggered the Central Bank’s legal action to both halt all further assets sales and demand a declaration of all assets.

Yes, CL Financial chiefs tried to sell off one of the remaining assets, contrary to the terms of the MoU.

So we have Republic Bank and Methanol Holdings shares being effectively unsaleable, since they are reliably reported as having been fully pledged before the original MoU.  Next we have the aborted attempt to sell other assets, not yet pledged.

So what is left?  Wait, what about the Liquor and spirits brands, the Angostura and Jamaican rum companies and such?  Well, according to its most recent Notice to Shareholders, Angostura is itself owed some $633M by CL Financial.  Given that its 2007 accounts disclose sales of $818M, that is a colossal amount of money for Angostura to be owed.  So much for that.

As for those Jamaican Rum assets, Lascelles de Mercado is Jamaica’s leading spirits company, controlling the top rum brands of Wray & Nephew and Appleton.  CL Financial owns about 87% of Lascelles de Mercado, which still has some 1,500 minority shareholders.  The Jamaica Gleaner of 17th June (at http://www.jamaica-gleaner.com/gleaner/20090617/business/business1.html and http://www.jamaica-gleaner.com/gleaner/20090617/business/business4.html) contained two instructive reports on that CL Financial subsidiary.  The first one highlights the payment of dividends to holders of ordinary shares for the first time in 2 years – Lascelles de Mercado said Monday it would pay dividend amounting to $14 per share, ending a drought for ordinary shareholders who have received no returns for at least two years. That subsidiary appears to be doing well.  The second report tells us  –

  • Duprey…has bowed out as chairman of CLF, but remains chairman of Lascelles.
  • Referring to the 12th June agreement – “Carballo said the government was in control of the management and running of the Caribbean conglomerate, but what has not changed is the ownership.

“The shareholding hasn’t changed. There is no intention to change the shareholding. It’s an agreement for about three years whereby the assets are managed and restructured and then the company will be returned to the shareholders,” he said.

  • There is more – “”So the question of selling does not arise,” he (Carballo) added, referring in this instance to Lascelles.”

So there you have it.  If we are to believe Michael Carballo – and I see no reason to doubt him – the good assets which are not pledged are to be retained by CL Financial.

Having lost grip of CLICO and its positive cash-flows, the CL Financial chiefs have now negotiated a new survival strategy.  On the other hand, we have now agreed to finance the recovery of the CL Financial group on terms which are unknown, to restore the value of its assets and return it to its shareholders.

The rueful regulator

The Governor’s statements on 13th February are really perturbing. On 13th February, at his first (and only) CL Financial briefing, the Governor of the Central Bank said – “Meanwhile, with the assistance of the Manager appointed to Clico by the Central Bank, we have made much progress in clarifying the present financial position of CLICO, which unfortunately, appears to be much worse than we had envisaged.”  How could it be much worse?  Are we being told, in not so many words, that CLICO’s filings and accounts were misleading?  Or did the regulator make a poor reading of the information?

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