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Archive for February 22nd, 2013

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“The implied transaction multiple on a 2014 earnings basis is 8.2x *** and on Irish Life’s June 2012 book value is 1.3x” extract from the press release from Great West Life announcing the acquisition, subject to regulatory confirmation, of Irish Life from the Irish government for €1.3bn

No, Minister for Finance Michael Noonan extracted €1.3bn from the buyer Great West Life in a deal announced this week, and he obtained a pre-sale dividend from Irish Life of €40m, meaning the deal was worth €1.34bn and that compares with the value placed on Irish Life by the Department of Finance last Summer 2012 and it is also around the €1.3bn sale price in December 2011, when it is understood GWL came close to buying Irish Life for €1.3bn. So, no, Minister Noonan didn’t give away Irish Life, but did he sell the life assurance company short?

There’s a strong body of opinion which suggests he did.

Remember 14 months ago – we were on the verge of closing the sale of Irish Life for €1.3bn. Cast your minds back to December 2011, that was when the euro was close to collapse, the new ECB president had announced a wall of cash with cheap 3-year loans to banks, Ireland’s long term borrowing costs were at 9%, we were convinced that Greece was on its way out of the euro and possibly, out of the EU. Domestically, the Q3,2011 national accounts showed that both GDP and GNP were declining, property prices were falling like a stone, unemployment was just under 15%, retail sales were down, construction was down and even our robust export sector looked as if it was under threat from lackluster demand from Europe and the UK. The ISEQ was at 2,900. In the UK, the Prudential was trading at 618p a share.

But since then – and remember in December 2011, the betting was that the sale of Irish Life to GWL would close at €1.3bn – the EuroZone has been calmed through a series of reassurances. Ireland has a deal on its promissory notes and our long term cost of borrowing is today at 3.6%. Unemployment is down at 14.6% though it is still elevated, the last half year of property prices has pointed to some stabilization, mortgage lending was up strongly in 2012 compared with 2011.  The ISEQ is at 3,700. The Prudential is trading at 977p a share.

So, we’re in an altogether better place than December 2011, when the sale price was €1.3bn. But the sale price hasn’t changed, and when you compare Irish Life with a European peer like Prudential, you might expect a current valuation to have a 50% premium on the €1.3bn valuation in December 2011.

There are various ways of valuing a company, including comparing valuations with other similar companies, but what stands out with the Irish Life sale is that using the multiple method of valuation where you take a company’s profit and multiply that by the ratio of valuations to profit of similar companies, is that Irish Life was sold short. According to the press release issued by Great West Life when it announced the acquisition of Irish Life this week, it is paying 8.2 times the earnings in 2014. Right now, Prudential in the UK is trading at 15.98 times its earnings – almost double.

The UK is a different market to Ireland, but if anything, it is far more competitive so you would expect a British life assurer to be trading at a smaller price earnings multiple than an Irish company. The UK economy is also facing lower growth than in Ireland, and it faces a triple dip recession. All the more reason for the Irish company to be worth more.

Minister Noonan refuses to provide any real information on the sale of Irish Life. He dismisses any challenge to the sale with the assurance that Goldman Sachs were heavily involved on our behalf.

Feeling reassured?

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The bane of Irish developers and businesspeople generally is the personal guarantee – this is where a business obtains a loan for business purposes, but the bank demands, and the proprietor of the business gives, a guarantee that the loan will be repaid, and that if it is not, that the bank can pursue the proprietor for their personal property, like their home, jewelry, car or savings. It’s not unique to Ireland, but I have not come across its prevalence anyplace else. And many developers these days who are unable to repay their business loans are worried that the personal guarantees will be called in and they will lose everything. In a world where the net benefits of limited liability enterprise are readily appreciated by most, it is indeed a curiosity why we still allow personal guarantees to form such an intrinsic  part of business lending in Ireland.

Whilst PGs are prevalent, they are not universal and on this side of the Border there are some developers like O’Flynn Construction’s and Tiger Developments’ Michael O’Flynn who didn’t provide PGs. He is amongst the exceptions though.

Today, we learn that NAMA has placed a British company controlled by one of Northern Ireland’s richest families, into administration. KPMG was appointed as administrator on 28th December 2012 to a company, Kendal Riverside Limited, a company with a registered address in Liverpool, and whose main asset is a shopping and outlet centre K Village, in Cumbria in north west England. The BBC today reports that the company owes NAMA “more than GBP 55m  [€64m] but the K Village is now worth at most £34m [€39m]” The company is controlled by the Jennings family, which was ranked 5th wealthiest in Northern Ireland in 2010, with a fortune of over GBP 166m (€192m).

The story with the shopping centre in England that has been placed in administration is sadly predictable – “the economic climate, a fall in property prices and lack of bank funding as the reasons”

But in this case, NAMA’s recourse is to the asset and the company which controls it. The Jenningses, Thomas James, Thomas Francis, Francis, John, James and Peter didn’t give personal guarantees.  The Jenningses are behind a string of commercial developments in Northern Ireland and were the one-time owners of the Cromwell private hospital in London.

Irish developers might ponder what their lives would be like today with PGs. And perhaps our regulators and legislators might ponder the net benefit to our economy if banks were restricted in demanding PGs.

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Despite the speculation in last weekend’s press about the need to change parts of the IBRC Act 2013 – the legislation rammed through the Oireachtas two weeks ago to liquidate Irish Bank Resolution Corporation – Minister for Finance Michael Noonan said yesterday that he has no plans at present to amend the Act.

This comes after concerns were raised by the judiciary and the Special Liquidator that the stay on proceedings by those suing IBRC, a stay imposed by the Act, could be problematic and possibly unconstitutional.

Yesterday in the Dail, the Fianna Fail finance spokesperson Michael McGrath asked Minister Noonan if there were any plans to amend the IBRC Act 2013, and the response was “there are currently no plans”  The Minister made reference to proceedings before the courts on 7th March 2013 which will deal with the terms of the Act, and the stay it imposes on proceedings. This is a reference to the Quinn family and their case against Anglo/IBRC claiming the loans advanced to them to buy Anglo shares were unlawful, and consequently that the Quinns are not liable to repay such loans which come to approximately €2.4bn.

The Quinns want to press ahead with their case against IBRC but are presently, apparently, prevented from doing so. They have threatened to challenge the constitutionality of the IBRC Act 2013 if the judge doesn’t allow them to proceed.

The full parliamentary question and response are here.

Deputy Michael McGrath: To ask the Minister for Finance his plans to amend the Irish Bank Resolution Corporation Act 2013 to remove the stay on legal actions against the bank; and if he will make a statement on the matter.

Minister for Finance, Michael Noonan: There are currently no plans to amend the IBRC Act 2013, which was signed into law on the 7th February 2013. As the Deputy is aware, this Act puts a stay on all actions against IBRC. I have been advised that the courts are in the process of examining if they have discretion to lift this stay and that some parties will make submissions on the 7th March. It is not possible for me to add anything further on these matters as they are currently before the courts.

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We reported here last week that NAMA is going great guns at dealing with requests for rent reductions from commercial tenants of property subject to NAMA loans – not only has NAMA approved reductions or rent abatements, to date of some €22m but it is dealing with requests within an average of five working days and approving 97% of requests. So, good news if you are a commercial tenant of a NAMA-controlled building.

Unfortunately, tenants of IBRC buildings are in a different boat, despite IBRC being 100% owned by the State. In a response to a parliamentary question from the Fianna Fail finance spokesperson Michael McGrath yesterday, the Minister for Finance Michael Noonan said that when the unsold loans of IBRC are ultimately transferred to NAMA, then at that point which will be from August 2013 onwards, from that point tenants can seek rent reductions but until then, they’re on their own.

You have to be impressed by the joined-up thinking!

The full parliamentary question and response are here.

Deputy Michael McGrath: To ask the Minister for Finance if he will consider applying to clients of Irish Bank Resolution Corporation the same criteria for applications for rent abatements as is currently applied by National Asset Management Agency;; and if he will make a statement on the matter.

Minister for Finance, Michael Noonan: As part of the role of the liquidators, the assets of IBRC will be valued independently before being sold. Any assets not sold to third parties (including loan counterparties and other financial institutions) at or above the valuation price will be sold to NAMA at the independent valuation. Where the assets are acquired by NAMA then normal NAMA policies and procedures would apply including their guidelines on rent abatements.

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APNResults2012

Apologies for the second day running for a weekday media blogpost, but this is not just egregious, it’s flagitious. A company many of you won’t be familiar with, has just reported its results. The company, APN News and Media publishes newspapers, operates radio stations and sells billboard advertising in Australia and New Zealand mostly. Why should it be of interest to you? Because Ireland’s largest print media group, Independent News and Media – which publishes the Independent, Sunday Independent, Evening Herald, Sunday World, Belfast Telegraph and regional newspapers here – owns 29% of APN.

APN’s results for full year 2012 were yesterday delivered to the Australian Stock Exchange – they don’t appear to be available on the APN website, at least not yet. There is a series of filings with the Australian Stock Exchange yesterday – see here. The annual results are here.

Here are the reports of the results from both the Irish Times and Irish Independent – screengrabs of both which show the full text of what was reported are used for comment and criticism.

PaperOfRecordAPN WhatDoYouExpect

Now take a look at a report from Rupert Murdoch’s “The Australian

If you relied on Irish reporting, you might think everything was hunky dory with APN. After all, an A$ 54m profit sounds bonzer, doesn’t it?

In fact, APN made a loss of A$ 455.8m, yes, nearly half a billion Australian dollars (€355m). Take a look at an extract of the annual report produced at the top of this blogpost.

Not only that, but the turmoil on the board of APN is reported in “The Australian” which suggests that the right hand man of Denis O’Brien – IN&M’s largest shareholder with 29.9% –  Vincent Crowley is in the frame to take over as CEO of APN following a resignation this week.

This news comes the same week as IN&M announced the sale of its South African businesses for R2bn (€169.8m) which is some €70m less than was originally expected, and also the same week as there has been speculation that IN&M is looking for a debt writedown, which might affect you and me, because we own or part-own some of the banks that lend to IN&M.

No wonder sales of Irish newspapers are tumbling. There has been a suggestion that both the Irish Times and Irish Independent will take their content behind a pay-wall this year. At this rate, we should be paying them to remove their reporting from general view, as soon as possible.

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Confidential messages received on here suggest that the Irish Bank Resolution Corporation liquidation wasn’t a very well-kept secret and prior to the announcement of the bank’s liquidation on 6th February 2013, there may have been some abuse of inside knowledge in the run-up to the liquidation announcement with some creditors getting their bills paid early.

Who knows?

This week in the Dail, the Sinn Fein finance spokesperson Pearse Doherty asked the Minister for Finance Michael Noonan to detail payments of over €1m that were made by IBRC in the immediate run-up and aftermath of the liquidation announcement. As is becoming par for the course, Minister Noonan  refused to provide any meaningful answer and fell back upon his old reliable “it’s commercially sensitive”.

So, it is “commercially sensitive” if a bank which we 100% own has made large payments around its “surprise” liquidation. It’s a good job we have such complete trust in politicians and bankers…

The full parliamentary question and response are here.

Deputy Pearse Doherty: To ask the Minister for Finance if he will provide a schedule of approved payments where the payment was for a sum in excess of €1 million made by Irish bank Resolution Corporation for the seven days prior to 4.30 p.m. on 6 February 2013 and to provide a similar schedule for payments made in the seven days from 4.30 p.m. on 6 February 2013.

Minister for Finance, Michael Noonan: The payments in excess of €1m made by IBRC for the seven days prior and post the liquidation are commercially sensitive matters and therefore I cannot provide such information. It is normal course of practise that payments made by IBRC and the Special Liquidator are conducted under appropriate confidentiality constraints in order to protect the interests of all parties.

UPDATE: 22nd February, 2013. Tom Lyons in last weekend’s Sunday Independent claims that €40m was given by IBRC to Topaz, the oil distribution company, on the day that it was liquidated by the Government. Topaz, says the Sindo, is part-owned by Denis O’Brien.

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