Home' Trinidad and Tobago Guardian : November 2nd 2014 Contents NOVEMEBER 2 • 2014 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
COMMENTARY | SBG3
When Finance Min-
ister Larry Howai
returns from an
ment last week to
his Financial Tow-
ers office on Mon-
day, one of his first orders of business is expected
to be the resolution of the CL Financial debacle,
which will be consummated in a new share-
By now, Mr Howai and his Cabinet colleagues
would have got over their disappointment at
the low sale price placed on Clico s 56.6 per
cent stake in Methanol Holdings (Trinidad) Ltd
by the arbitration tribunal sitting in London on
the case brought by MHTL s minority share-
In effect, the $7.4 billion sale price ordered
by the tribunal leaves CL Financial some $12.6
billion short of the estimated $20 billion debt
that the group owes the T&T government (and
its taxpayers) directly.
The question at this point is this: Can CL
Financial s remaining assets generate $12.6 bil-
The answer is quite likely to be maybe.
According to the July 2013 Cabinet Note and
the accompanying Letter of Intent on the res-
olution of this matter, there are two main assets
from which the Government can seek to recover
the $12.6 billion.
The first is Clico s traditional portfolio and
the other is the 51 per cent stake in Republic
Bank held by the group.
Previously, in this space, it was assumed that
the Government would want to sell the 51 per
cent stake and the traditional portfolio in order
to recover the $12.6 billion.
Selling the assets to the highest bidder is, of
course, the preferred option for taxpayers.
But it may prove to be a challenging and
lengthy process to sell these two financial assets
in a small, open, developing country at a time
when large global banks are seeking to make
their own capital adjustments because of Basle
III and other requirements.
Potential purchasers may simply not be pre-
pared to pay what the Government and its tech-
nocrats determine to be the fair market value
for Republic Bank and Clico s traditional portfolio.
Or the process of disposing of these assets
may take beyond the May 2015 deadline that
T&T s election cycle has imposed on the res-
It is also clear that the process of disentangling
the 25 per cent of Republic Bank that is being
held in the Clico Investment Fund---as well as
the 19 per cent of the bank that is owned by
Clico Investment Bank, which is in liquidation---
may not be a smooth and politically painless
Instead of forcing through a sale---and facing
the ignominy of being forced to accept what the
market is offering---it is possible that the Gov-
ernment and the CL Financial shareholders can
agree on a value, or a process for arriving at a
valuation, for Republic Bank and the Clico tra-
ditional portfolio and set that amount off against
part of the $12.6 billion debt.
Here s how that would work: An investment
bank would be hired to determine the value of
51 per cent of Republic Bank. Assuming a price
of $130 a share, that majority stake would be
worth $10.4 billion.
If the Government tests the market and deter-
mines that a sale of a majority stake to the
highest bidder is unlikely to yield what it expects,
the Government and the CL Financial share-
holders may agree to swap $5.3 billion of the
debt for the 26 per cent of the equity in the
bank held by CIB and Clico. (It would not be
the entire $10.4 billion because the Government
already paid Clico for the Republic Bank shares
ceded to the Clico Investment Fund in October
By virtue of the 25 per cent stake of the Repub-
lic shares in the Clico Investment Fund and the
26 per cent of the bank acquired from Clico and
CIB, the Government would be Republic Bank s
Will the Republic Bank board---which fought
so bitterly against Clico s ownership of shares
in the bank in the early nineties---welcome own-
ership by the State with open arms?
With regard ro Clico, the same process would
apply to the sale of its traditional portfolio. If
the market does not yield a fair value, the val-
uation of Clico done by Towers Watson can be
applied against the CL Financial debt.
It s just a thought.
Whatever direction the Government decides
to head in, it is important that there be bipartisan
support for the resolution, which would only
come about if there is widespread consultation
on the issue.
Bank hikes lending rate
• Just over a month after the 0.25 per cent
increase of the repo rate by Central Bank, Republic
Bank has become the first commercial banking
enterprise in T&T to increase its prime lending
rate by the same amount.
Republic, T&T s largest commercial bank,
announced in newspaper advertisements last
week that its prime lending rate---the loan rate
offered to its best clients---would go from 7.50
per cent to 7.75 per cent, effective November 1.
The move is likely to have an impact on all
of the bank s new loans and some loans that
are based on variable rates.
In announcing the increase in the repo rate
by 0.25 per cent to 3 per cent on September 26,
the Central Bank said that the move was nec-
essary "to pre-empt a potential rise in inflationary
pressures and to mitigate higher portfolio out-
In terms of inflationary pressures, headline
inflation more than doubled to 7.4 per cent in
August as a result of a sharp uptick in food
In an interview with the Business Guardian
in New York City on September 25, Central Bank
Governor Jwala Rambarran explained that he
does not expect commercial banks to increase
lending rates either immediately or by the full
0.25 per cent.
"I would think that with the amount of excess
liquidity in the system, you might not see even
a full movement on the 0.25 per cent by com-
mercial banks. You might see some, but that is
not going to happen overnight. If that happens,
you are going to see movement gradually."
• Some 269,361 Republic Bank shares worth
over $32 million traded on the local stock market
last week. The bank s share price declined by
$0.48 and ended last week at $120.72.
Plipdeco borrows $201 m
• Plipdeco announced on Thursday that it
had borrowed a total of $201 million from First
Citizen, the majority state-owned bank, to refi-
nance existing debt and purchase equipment.
Plipdeco, in a statement on the T&T Stock
Exchange, said that it was borrowing US$13.19
million ($83.62 million) to refinance its existing
debt portfolio and accessing additional financing
of $117.73 million which would be used for the
purchase of equipment for the port of Point
Lisas and undertaking remedial works to port
Plipdeco, a majority state-owned company,
operates the port at Point Lisas and is the land-
lord of the Point Lisas Industrial Estate.
...rated A+ by Caricris
• In September, Caricris assigned an initial
corporate credit ratings of CariA+(Foreign and
Local Currency Rating) on its regional rating
scale, and ttA+ on the Trinidad and Tobago
(T&T) national scale to Plipdeco. These ratings
include a single notch up due to majority own-
ership by the Government of the Republic of
Trinidad and Tobago. The ratings indicate that
the level of creditworthiness of this obligor,
adjudged in relation to other obligors in the
Caribbean and within T&T is good.
According to Caricris, the ratings are supported
by Plipdeco s strong market position in local
port and industrial real estate operations. In
2013, Port Point Lisas commanded 51 per cent
of the import export market and 16 per cent of
the transshipment market.
The company is well capitalized with com-
fortable debt protection measures. Debt service
coverage ratio was comfortable at 2.2 times as
at December 2013; higher than the 5-year (2009-
2013) average of 1.4 times as a result of adequate
operating cash flows and a low level of debt
service requirements. Plipdeco has been profitable
over the last five years with a profit after tax
margin of 6.4 per cent reported in 2013 and an
average of 5.3 per cent.
Is Republic destined to be
a state enterprise?
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