A strange note discovered last in the 2013 financial results of CL World Brands, the Scotland-based holding company of CL Financial's alcohol empire, was a reminder of the fact that the resolution of the Clico collapse is one of the most pressing matters facing new Minister of Finance, Colm Imbert.
As soon as he gets past the 2016 budget exercise, the minister needs to focus his mind and energies on:
o Resolving the outstanding issues with regard to the shareholders' agreement between CL Financial and the Government, which was first signed in June 2009, by PNM minister, Conrad Enill
o Encouraging the Central Bank to complete the valuations of Home Construction Ltd, Angostura Holdings Ltd and CL World Brands as part of the transfer of the Clico shareholdings in those companies to the Government
o Pushing the Central Bank to complete the valuation and sale of Clico's 56 per cent stake in Methanol Holdings (International) Ltd, the Oman-based methanol producer, the proceeds of which have been allocated to pay off Clico's policyholders, both assenting and non-assenting
o Driving the Central Bank to complete the sale of Clico's traditional portfolio, which has been outstanding since May 2014, with no indication from the Bank that the first step in that process--the hiring of an investment bank to find a suitable buyer--has been completed
With the threat of an empire-recovery lawsuit from a gentleman by the name of Lawrence Andre Duprey, Mr Imbert would be well advised to treat this matter as extremely urgent and it would be helpful if he were to appoint a CL Financial Czar--someone like the redoubtable Alison Lewis, the retired permanent secretary in the Ministry of Finance--who knows this matter inside out.
Far be it for me to be perceived as offering unpaid advice to the minister--who has extremely competent, paid advisors--but it would also be useful for Mr Imbert to memorise Section 44 F(5) of the Central Bank Act, before he holds his first meeting with Central Bank Governor, Jwala Rambarran.
Section 44 F(5), which has been quoted in this space on a number of occasions, states: "In the performance of its functions and in the exercise of its powers under section 44D, the (Central) Bank shall comply with any general or special directions of the Minister (of Finance) and shall act only after due consultation with the Minister."
My lawman's interpretation of that clause leads me to conclude that the current Minister of Finance would be well within his legal rights to assert sovereignty over the CL Financial issue by his ability to issue "general or special directions" to the Central Bank that it "shall comply with" and that it "shall act only after due consultation with the Minister."
That section of the Central Bank Act defines the relationship between the Ministry of Finance and the Central Bank on every or any issue touching on the resolution of the Clico matter, up to and including when reports should be delivered.
Had the former minister of finance, Larry Howai, chosen to assert the minister's right to issue "general or special directions" to the Central Bank on Clico matters, he could have directed the Central Bank Governor to complete and deliver the report into the termination of Gerald Yetming and Carolyn John, as the chairman and managing director of Clico respectively, within seven days.
Minister Imbert would also do well to take note of Section 50 of the Central Bank Act, which states: "The Minister may, after consultation with the Governor, issue to the Bank such written directives of a general nature as may be necessary to give effect to the monetary and fiscal policies of the Government."
If Minister Imbert, for example, were to issue a Section 50 directive to the Central Bank to introduce "greater flexibility with regard to the pricing mechanism" of the supply of foreign exchange to individuals and businesses, the response of the Central Bank would be most illuminating.
But I digress from the issue at hand, the mysterious loan of US$100 million (some $637 million) of CL World Brands to CL Financial.
In scanning the CL World Brands accounts for 2013--which were only signed by the company's chairman Marlon Holder and director Gerald Yetming on May 28, 2015--my eyes fell upon a sentence, under post balance sheet events, on page 4 of that 30-page report, which stated: "In 2014, the company lent funds to its shareholder, CL Financial Ltd."
Both Holder and Yetming are CL Financial directors as well as being directors of its subsidiary CL World Brands.
CL Financial sources explained that CL World Brands had lent US$100 million ($637 million) to its parent company, CL Financial, in two tranches: US$75 million and US$25 million.
Most of the US$100 million lent to CL Financial has been made available to Home Construction Ltd to repay a significant part of its debt to majority state-owned First Citizens. Home Construction borrowed over $1 billion, mainly from First Citizens, to build One Woodbrook Place.
So far, approximately $500 million (US$78.5 million) of the $637 million that was borrowed from CL World Brands has been used to pay the Home Construction debt with a further US$20 million being held for future debt payments.
The CL Financial sources admitted that Home Construction's annual debt repayments to First Citizens amount to semi-annual payments of $77 million, a total of $154 million a year (US$25 million).
It was also disclosed that CL Financial will end up with a US$100 million receivable from Home Construction and CL World Brands will end up with a US$100 million receivable from CL Financial.
These disclosures raise some questions:
o If Home Construction's annual debt commitment is US$25 million, why would CL Financial borrow US$100 million from CL World Brands, representing four years of debt repayments, rather than borrow US$25 million a year for four years?
o Will Home Construction ever be able to repay CL Financial and will CL Financial ever be able to repay CL World Brands, 42 per cent of which is owned by Clico?
o That question is particularly pregnant given the statement by Governor Rambarran on March 27 this year that $3 billion of the money owed by Clico to the Government would come from the valuation and transfer to the Government of the insurance company's shares in Home Construction (43 per cent), Angostura (32 per cent) and CL World Brands (42 per cent).
How does the depletion of about £61 million (US$100 million) from CL World Brands for the loan from CL World Brands through CL Financial to Home Construction impact on the valuation of CL World Brands?
o Was the former line minister for CL Financial, Larry Howai--who would have been the CEO of First Citizens when the original Home Construction loan for the construction of One Woodbrook Place was granted--specifically told about and give approval to this milking of the CL World Brands cash cow?
o Home Construction sold Valpark and Atlantic Plaza were sold for $158.5 million in 2013 in order to repay the loan. Why did CL Financial move away from the idea of selling Home Construction assets in order to pay the bank loan?
o Would there have been tax consequences if CL World Brands had chosen to make an extraordinary dividend payment instead of the related-party loan, which like other related-party loans in the CL Financial group, such as the $984 million Angostura loan to the parent, may never be repaid?
o And with regard to taxes, do UK laws permit a Scotland-based subsidiary to lend money to its Trinidadian parent for on-lending to a third party subsidiary without reference to HMRC, the UK tax collector?
Disclosure: The author is a shareholder of Angostura.