Home' Trinidad and Tobago Guardian : May 19th 2016 Contents MAY 19 • 2016 www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG3
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Following the publication of last week s column
in this space, which was headlined "A CL Finan-
cial resolution proposal," chairman of the Clico
Policyholders Group, Peter Permell, pointed
out to me that my numbers on Clico s balance
sheet (its assets and liabilities) did not reflect
Last week s commentary had built a proposal based on
Clico s 2014 financial report, which stated that the insurance
company had liabilities of $30.25 billion and assets of $29.31
Clico s balance sheet would have changed as a result of the
first phase payments that the Central Bank would have made
to the Government and to the non-assenting policyholders of
Clico and British American last year.
As the Central Bank s November 6, 2015, statement providing
an update of its resolution plan for Clico states: "On March
27 2015, Clico made the first partial payment of $4.2 billion
to the Ministry of Finance. On May 14 2015, Clico began pay-
ments to non-assenting STIPs (short-term investment products)
policyholders. At the end of October 2015, Clico paid $695
million to 486 non-assenting STIPs policyholders. This rep-
resented 68 per cent of the total value of claims paid to 34
per cent of these policyholders."
As at the end of October 2015, therefore, the Central Bank
would have reduced Clico s liabilities by $4.895 billion ($4.2
billion + $0.695 billion), which would have done by reducing
the company s assets. This means Clico s liabilities would have
been reduced to $25.35 billion and its assets to $24.41 billion.
Assuming that the payments last year to the Government
and to the non-assenting policyholders came from a combi-
nation of cash and government securities/short-term non-
government securities, one can conclude that Clico s cash and
near-cash assets would have been reduced from $19 billion
to $14.105 billion by the end of October 2015.
So, when the Central Bank issued its statement on November
6, 2015, Clico would have had assets of $24.41 billion, comprising
cash and near-cash instruments of $14.105 billion and other
assets totalling $10.31 billion, which include shares in Republic
Bank, Angostura, Witco, One Caribbean Media and others.
That means that 58 per cent of Clico s 2015 assets comprise
fixed income securities and cash and 42 per cent of its assets
are equities and property.
The fact that Clico s assets include about $14 billion in
fixed-income securities and cash would probably mean that
the company would be able to borrow against that sum at
100 per cent---$14 billion. And even if the rest of Clico s assets
($10 billion) were margined at 50 per cent, would it be farfetched
to believe that some money-centre investment bank would
be willing to lend CL Financial $19 billion (US$2.85 billion),
by leveraging all of its assets?
I believe there is merit in the Government considering as
a solution that keeps Clico s assets intact and which requires
the insurance company to leverage those assets in order to
repay its third-party creditors, who are owed, by my estimate,
a total of $22.9 billion.
Among the issues with this proposal is that it leverages
mainly TT-dollar, fixed income assets to borrow US dollars.
This means that there would be both interest rate and exchange
The interest rate risks can be hedged.
The exchange rate risk can be mitigated by a sinking fund
comprising about US$500 million that CL Financial holds in
escrow accounts (a former minister of finance suggested the
Why would the Government even consider entering into a
long-term relationship with CL Financial, when Clico s $24
billion in assets can be leveraged to borrow at least $19 billion
If Clico s creditors are paid in full, the company can be
returned to its 51 per cent shareholder, CL Financial, and the
onus would then be on the CL Financial shareholders to ensure
they can repay the $19 billion loan?
Are there other proposals that the Government is considering
for the resolution of this matter?
As mentioned previously, the current Central Bank proposal
(outlined in the bank s November 6, 2015 statement on its
Web site) is that Clico assets should either be transferred to
the State or sold to repay the insurer s creditors including, of
course, the State.
The payment of the $4.2 billion to the State in March 2015---
and $695 million to the non-assenting policyholders by October
last year---was part of the first phase of the Central Bank s
plan to pay off Clico s creditors.
The unfinished aspect of phase one of the Central Bank s
plan was to transfer to government shares in three of Clico s
assets: Angostura Holdings Ltd (AHL), CL World Brands Ltd
(CLWB) and Home Construction Ltd (HCL). The 2014 sale
of Methanol Holdings (Trinidad) Ltd funded the first phase,
which was supposed to settle 85 per cent of Clico s liabilities
to the Government and the non-assenting policyholders.
The second phase was meant to settle the remaining 15 per
cent of the claims of government and the non-assenting pol-
icyholders on Clico s statutory fund, with this phase being
funded from the sale of Clico s shareholding in Methanol
Holdings (International) Ltd (MHIL).
In the third phase, creditors outside of Clico s Statutory
Fund such as non-government mutual fund holders and non-
residential STIPs policyholders will be paid following the sale
of Clico s shareholding in Republic Bank Ltd (RBL) and other
The disadvantage of the Central Bank approach, in my view,
is that it depends on the tacit agreement of the shareholders
of CL Financial and their commitment not to take legal action
for judicial review of the State s management of CL Financial
assets with an injunction to stop the sale of assets.
My understanding is the letter written in March 2016 to
the Central Bank Governor, Dr Alvin Hilaire, by Ramesh
Lawrence Maharaj, on behalf of Lawrence Duprey, means there
can be no assurance that the CL Financial shareholders would
not take action to stop the sale of assets.
The fear is that there is a considerable risk that the Gov-
ernment s attempt to sell Clico assets may be stopped by the
CL Financial shareholders and tied up in court for another 15
years.Clearly, no one benefits from such an approach
but the lawyers who would be retained in that
matter. The proposal to require CL Financial
shareholders to leverage the Clico s 2014 assets
of $24.4 billion to borrow US$3.60 billion has
several advantages, which include:
• It can be arranged quickly;
• It would basically end government s involvement in CL
• Transfers the risk of managing the Clico assets to the CL
• Forestalls a legal challenge;
• Would lead to an infusion of about US$2.85 billion into
the Central Bank, which would boost our foreign reserves to
about US$12 billion.
• It would eliminate the 2016 fiscal deficit, which assumed
$3 billion from the sale of Clico assets, particularly the traditional
portfolio and MHIL, as government would not need to borrow
an additional $5.6 billion to fund its 2016 fiscal accounts.
• Government would not need to tap the Heritage and Sta-
bilisation Fund for US$1 billion in 2016
• It may reverse the recent credit downgrades of T&T.
Disclosure: The author of this commentary is a shareholder
pay off creditors,
return to owners
DR ALVIN HILAIRE
Central Bank Governor
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