Home' Trinidad and Tobago Guardian : August 1st 2013 Contents AUGUST 2013 • WEEK ONE www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG3
Chief editor-business: ANTHONY WILSON
Editing and design: NATASHA SAIDWAN
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In the last two weeks, my respect and
admiration for the Ministry of Finance,
and its Minister Larry Howai have
Two Thursday s ago, I wrote Mr Howai an e-
mail in which I requested clarification of Gov-
ernment s position with regard to the new share-
holders agreement between the State and CL
Financial (CLF), in the context of last Wednesday s
annual meeting of CLF shareholders.
As a result of the e-mail, the minister invited
me to an off-the-record briefing at his office on
July 20 (Saturday).
Then, on Monday night (July 22), some
unknown person left an envelope with my name
on it at the Guardian s office.
The envelope contained the most recent Cab-
inet Note on the CLF resolution, an Ernst &
Young analysis of the recovery of Government s
funding to CLF and a Letter of Intent from CLF,
which claims to be a true reflection of the outcome
of the negotiations between Government and
These documents are a goldmine for someone
who has followed this story closely since the
press conference of January 30, 2009, announcing
the collapse of the CLF empire---and has written
over 80 commentaries on the issue since Sep-
That Monday night, at 8.09pm, I wrote Mr
Howai an urgent e-mail, advising him that I had
the Cabinet Note, pointing out that if I had the
Note other media houses would have received
it and asking him to call me re: on if I should
hold the Note and risk getting scooped.
As it stands, I didn t hear from the minister
until 11.43 Monday night, but we took the respon-
sible decision of deciding not to rush to publish
given the current sensitivity over concocted doc-
On Tuesday, July 23, the minister invited me
to a briefing at the ministry with his three main
advisers on the CLF resolution.
At that meeting, which went on for more than
three hours, the minister and his team tried hard
to convince me that my instinctive misgivings
about the CLF resolution arrangements were
Since that meeting, the minister and his team
of advisers---which now includes attorneys, finan-
cial experts and a corporate communications
company---have continued to attempt to sway
me from my position by way of a series of e-
This culminated in another three-hour meeting
Some may argue that the reason Mr Howai
and his team have tried so hard to convince me
is because they feel that if they can convince
me, they can convince first the Cabinet, then
Parliament and finally the nation.
My instinctive misgivings, on first reading the
documents, have since been fortified by research,
speaking to local experts and reviewing private
e-mails that have been received.
All of this---and the interactions with the Min-
istry are definitely included---has led to the fact
that it is a sine qua non of financial restructuring
of this kind that creditors of an insolvent company
are always repaid in full before any value is
returned to the shareholders of a company.
In my view---and I am always subject to being
corrected---it may be unprecedented in the history
of bailouts for the shareholders of an insolvent
company to receive value from that company
before all of the creditors---secured and unse-
cured---are fully repaid.
One of the fundamental bases of capitalism---
one of the well established, incontrovertible prin-
ciples of modern finance---is that, "the investors
who take the least risk are paid first." That quote
is taken from the US Securities and Exchange
Commission (SEC) entry on corporate bankruptcy,
but it is a principle that applies equally to sit-
uations of negotiated restructurings such as the
This thinking dictates that ordinary share-
holders are always the last in line for recovery
behind secured creditors, unsecured creditors
and holders of preference shares.
Government agrees with this order of prior-
ity.If shareholders are last in line and if CLF has
assets with an estimated mid-range valuation of
$33.1 billion in assets and $34.7 billion in liabilities,
how does the Ministry of Finance justify a rec-
ommendation to Cabinet in which the CLF share-
holders retain $1.6 billion in assets before all of
the secured and unsecured creditors are paid in
Remember those assets include 51 per cent of
Angostura Holdings, a public company, 51 per
cent of Home Construction Ltd and 100 per cent
of CL Marine.
To facilitate CLF owning 51 per cent of Angos-
tura, it seems to me, Clico will have to transfer
(as in sell) 12.56 million of its 66,971,877 Angostura
shares, which is equal to 6.1 per cent of the rum
and bitters company, to CLF from its Statutory
Fund. CLF currently owns 44.9 per cent of
Angostura, some 92,551,212 shares. Selling those
shares may trigger the T&T SEC s Takeover Code,
which may mean a fair value offer to all Angostura
minority shareholders. To bring CLF to 51 per
cent of Home Construction, Clico will also have
to sell the group 7 per cent of the property devel-
On the issue of CLF retaining assets worth
$1.6 billion in the group, the Ministry of Finance
argues that no value will accrue to the group s
shareholders, who include its former executive
chairman Lawrence Duprey who owns at least
33 per cent of the company, until CLF s entire
debt to the Government is repaid in full. Based
on the mid-range valuation of CLF, that debt is
estimated at $3.3 billion, which would be secured
by a debenture on the fixed and floating assets
of the Angostura, Home Construction and CL
The $3.3 billion that it is estimated CLF will
owe the Government is arrived at after the group
disposes of assets with an estimated value of
$31.4 billion, fully settles the $16.3 billion in third
party liabilities and repays $15.1 billion of the
$18.33 billion, which is the revised claim to which
it is recommended the Government should agree.
(The original claim was $23.3 billion)
Now, if CLF has an estimated total $33.1 billion
in assets---the $31.4 billion is the quantum of
assets to be sold to repay creditors---it seems to
me that one of the obvious options open to Gov-
ernment was to have insisted that all the assets
should be sold and the proceeds divided among
all of the creditors.
The Ministry of Finance indicates that it does
not see any mechanism for such a sale.
Based on CLF asset values of $33.1 billion, this
would mean that Government would receive
$16.55 billion, all other third-party liabilities
would receive $16.55 billion but the CLF share-
holders would receive nothing. The group s share-
holders would only receive consideration for their
shares if the proceeds from the sale of the group s
assets totaled more than $34.7 billion, which is
the estimated value of CLF s total liabilities.
This option, one is left to assume, has not
been acceptable to the CLF shareholders.
But, it seems like a logical and reasonable solu-
tion to me; and one that has the merit of being
based on the principle that "owners of the com-
pany have the last claim on assets and may not
receive anything if the secured and unsecured
creditors claims are not fully repaid," as the US
SEC put it.
The way the Ministry of Finance explained it
to me is that under the proposal that is currently
before Cabinet, the State has the opportunity to
recover all $18.4 billion of the Government s
claim over time: some $15.1 billion after the dis-
posal of assets and $3.3 billion in accordance
with the ongoing relationship between Govern-
ment and the group.
The Ministry further points out it is proposed
to Cabinet that all of the major corporate decisions
to be made by Angostura, Home Construction
and CL Marine must have the blessing of the
I maintain, however, that the proposal before
Cabinet opens Government to the risk that its
claim on CLF could be stopped at $15.1 billion,
which is 65 per cent of its original claim.
My support for the contention that Govern-
ment may be setting itself up for a 35 per cent
haircut is based on a proposal in the Letter of
Intent, submitted by CLF managing director,
Marlon Holder, to Vishnu Dhanpaul on July 4.
In that proposal CLF contends that it is "entitled
to the benefit of a potential control premium"
on Republic Bank shares, of which the group
owned 52 per cent before the collapse. That con-
trol premium has the potential to reduce sub-
stantially CLF s estimated $3.3 billion debt to the
CLF is also disputing Clico s ownership of
beneficial interests in Methanol Holdings
(Trinidad) Ltd, Republic Bank, Angostura, CL
World Brands and Home Construction, which
means---if it is successful in pursuing---that the
Government could end up owing the group sub-
stantial sums of money.
So, it is very possible that Government and
CLF will be locked in mediation or arbitration
even under the new shareholders agreement
with the debenture, the negative covenants and
the strong Government influence on the board
of the group.
Will CLF shareholders
benefit from resolution?
Continued on page 4
Minister of finance
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