Archive for July 5th, 2010

IMAGE: Who owns Dublin port – source: Dublin City Council, full image here.

Reportedly taken over by NAMA in the first tranche, the loan in respect of the site of the former Irish Glass Bottle factory in Ringsend in Dublin, now known as South Wharf, is thought to be the subject of one of NAMA’s largest single loans. The present financial mess of this development site has been the subject of entries on here before, for example here and here. In a nutshell, the State through the State-owned Dublin Docklands Development Authority (DDDA) is part of a consortium lumbered with a site which is worth less than 15% of what was paid for it (€50m cf €412m). To make matters worse the two other main investors in the consortium are commonly regarded as Derek Quinlan and Bernard McNamara who, together, are unlikely to be able to repay anything close to their share of the nominal value of the €266m loan which is now reportedly with NAMA. And the DDDA still has residual outgoings to the tune of €5m per annum in respect of the site. A mess in the present day, no-one can deny.

There is a puff-piece from Saturday’s Independent which promotes Paul Coulson’s business flair demonstrated by his involvement in selling the leasehold interest in the IGB site at what was now seen as the top of the market (for a wrecking-ball piece on Paul Coulson by the same newspaper take a look and have a laugh here). And whilst the DDDA is subject to various investigations into its conduct in the last few years, the freeholder of the site in 2006, the State-owned Dublin Port Company (DPC) seems to have escaped any spotlight being shone on its dealings, in particular why the DPC only ended up with 33.6% of the sale proceeds when it was the freeholder and the leases had approximately 60 years remaining and the DPC held the whiphand over changes of use. Indeed would the DPC have had the right to forfeit the lease given that the use anticipated by the lease was discontinued from 2002?

Jones Lang LaSalle (JLL) whose former chairman, John Mulcahy, is now NAMA Head of Portfolio Management , was one of the property advisers (along with Hamilton Osborne King – bought by Savills in June 2006) to the two selling parties of the IGB site – the freeholder State-owned DPC and the leaseholder South Wharf PLC. JLL, however, had been involved with the project on behalf of South Wharf PLC from 2000. A firm acting on behalf of Mr Mulcahy has recently issued a statement which was reported on the finfacts.ie site “Gordon MRM say Mulcahy did not value the Glass Bottle Site. The firm which he chaired at the time [Jones Lang LaSalle] – – together with Savills did advise the co-owners of the Glass Bottle Site, the State owned Dublin Port company and Ardagh plc, on the sale of that site. But that mandate did not require a valuation to be made on the site. Valuations are typically the responsibility of purchasers not sellers” . JLL’s own website refers to South Wharf PLC only as a client, the DPC is not referred to as a client. JLL say they helped broker a deal between South Wharf PLC and the DPC in 2006. This deal was reported to the London Stock Exchange and included provisions that the site would be placed on the market at a minimum of €250m (to what extent was this sum informed by JLL?) and that the proceeds of any sale would be split 33.6/65.4 DPC/South Wharf PLC.

Let’s cast our minds back to the purchase of the site by the Becbay (owned by DDDA and effectively Bernard McNamara and Derek Quinlan) consortium in January 2007 following the submission of tenders in October 2006. The freehold on the site was owned by another State-owned company, the Dublin Port Company (DPC) who had reportedly granted a lease of 99 years from 1965 to Paul Coulson’s Ardagh PLC and its subsidiary, The Irish Glass Bottle Company Limited who by 2006 was part of South Wharf PLC – South Wharf PLC was the private sector Paul Coulson company whose only asset was the IGB site. When the site was sold to the Becbay consortium by the combination of State-owned DPC and private sector South Wharf PLC for a reported sum of €412m, the split of the proceeds was €138.4m to DPC and the lion’s share, €273.6m to Paul Coulson’s South Wharf PLC (Paul Coulson himself owned 3.8% of South Wharf whilst an “investment vehicle” controlled by him, Yeoman International Holdings SA (33% owned by Paul Coulson) owned a further 23.05% in South Wharf PLC). There were a reported 1300 further shareholders in South Wharf PLC so the bunce was shared fairly widely.

The lease on the site was very specifically for glass manufacture and ancillary activity, yet it was sold to the Becbay consortium on the reported understanding that it would be developed for commercial and residential use. South Wharf’s lease was valued at €20m in 2002. So how come it came to be worth €273.6m four years later. And how come the State-owned DPC which owned the freehold and more importantly controlled its use only received €138.4m? Are there public interest questions to be asked of Mr Mulcahy in relation to the brokering of the deal between the DPC and JLL’s client, South Wharf PLC, in June 2006 which set in stone the sale of the site and most importantly the split of any future proceeds?

What follows below is the history of the site and also the history of the private sector company that profited most from the sale of the site to the Becbay consortium. The puzzle as to the split of the proceeds of the sale between the DPC and South Wharf PLC is explored at the end. Whilst there is some inconsistency between various sources as to the facts (for example rent on the site, lease length and reversion date and indeed the foundation year of the Irish Glass Bottle Company), here’s the history:

Thanks to a judgement in the High Court between Irish Glass Bottle Company Limited and Dublin Port Company in 2005, we know the terms of the leases covering the site which were acquired by Paul Coulson’s Ardagh PLC through its subsidiary The Irish Glass Bottle Company Limited. There appear to have been three separate leases though it unclear what happened with the second lease which reverted in 1997. There also appears to be some inconsistency between the terms reported in the judgement and the commonly reported commentary that the lease was 99 years from 1966. The terms as recorded at the High Court were:

1871 Irish Glass Bottle Company started production in Charlotte Quay, Ringsend according to some sources

1932 Irish Glass Bottle Company founded in Dublin according to Ardagh Glass Group PLC. The company operates a factory on part of what later becomes the IGB site. UPDATE: 2nd August, 2010. The Company Registration Office (cro.ie) has kindly provided the following information “Company number 7446 was incorporated on the 19/12/1925 as Irish Glass Limited. On the 22nd of November 1952 a special resolution was passed to change the company to a PLC. On the 19th of February 1990 the company changed it’s name to Ardagh PLC. On the 28th of July 2004 the company changed it’s name to South Wharf PLC. Then on the 6th of February 2007 a  special resolution was filed to change the company to a Limited company.”

1950s Irish Glass Bottle Company take over Waterford Glass. at the time IGB was owned by Joe McGrath, Richard Duggan and Captain Spencer Freeman who were heavy investors in Irish business at the time and who had reportedly made their fortunes with the Irish Hospitals Sweepstakes, a “a private company run for profit and its handful of stockholders have used their earnings from the sweepstakes to build a group of industrial enterprises that loom quite large in the modest Irish economy. Waterford Glass, Irish Glass Bottle Company and many other new Irish companies were financed by money from this enterprise and up to 5,000 people were given jobs”.

1966 A large part of the IGB site is “reclaimed” from Dublin Bay – up to this point the site was effectively a landfill site where rubbish was dumped into the bay. Irish Glass Bottle Company acquire a 99-year lease to the land. The leases appear to restrict the use of the land by the lessee “will use the demised premises and all buildings and structures thereon for the manufacture of glass and products thereof as the main purpose and may also use the same for purposes which are ancillary to the main purpose, including the manufacture of containers and packages of all descriptions, but will not use the said premises, buildings or structures or any part thereof for any other main purpose without first having obtained the consent in writing of the landlord.”

1975 New factory is constructed on the IGB site.

1978. Closure of that part of the IGB site that was used as a dump to new dumping.  One of the reasons the site needed to be decontaminated before being used for non-industrial development was because of its former use as a dump.

1982 Paul Coulson founds Yeoman International Group Limited.

1985 The Irish Glass Bottle Company Limited registered as a limited company.

1988 Yeoman buys British leasing company, CLF for GBP 93m.

1993 Yeoman sues advisers (including Linklaters and Paine) in its purchase of CLF for GBP 68m and eventually obtains settlement of GBP 35m from SG Warburg

1998 Paul Coulson becomes chairman of Ardagh PLC, replacing Peter Murray.

1996 Dublin Port Company established pursuant to the Harbours Act 1996. On 3rd March, 1997 DPC assumed all the assets, including the freehold of the IGB site, of the State-owned Dublin Port and Docks Board.

1999 Ardagh PLC buys Rockware Glass.

2000 Liam Carroll’s ZOE Developments who own a strip of land adjoining the IGB  site submit large scale commercial redevelopment plans plus housing for up to 7,000 people with 2,200 car parking spaces.

2000 Ardagh appoints Jones Lang Lasalle to “advise on, and resolve, various legal and planning-related issues to enhance value”. Further “Between 2000 and 2005, we [JLL] met regularly with the client to provide strategic advice on a range of issues. We [JLL]also produced a masterplan which took into consideration issues such as likely end-user demand, known requirements, likely competition, future demand drivers and the anticipated development programme”. And lastly “In June 2006 we[JLL] brokered an agreement whereby Dublin Port and South Wharf plc would have a joint interest in the public tender documents presented to the market”

2002 Ardagh buys Consumers Glass (Italy)

2002. It is reported in the Irish Times that Ken McDonald of estate agency and property company Hooke and McDonald valued the lease of the IGB site at €20m and it is reported that the lease has 64 years to run.

5th July 2002, IGB closed down with loss of 375 jobs. IGB is reported to be a subsidiary of Ardagh PLC. The reason given by Ardagh for the closure of the IGB site is that glass manufacture in the State has become uneconomic in that neither volumes or prices achievable for its product would justify keeping the facility open. Further reporting on the closure here.

Early 2003. Ardagh PLC is split in two with Ardagh Glass Limited (registered in Guernsey) keeping the glass manufacturing business and Ardagh PLC is the “rump” which changes its name to South Wharf PLC and its only asset is the now closed-down site of the IGB at Ringsend.

2003 AGL acquires Heye Glass and HEYE International (Germany)

2004 AGL acquires Huta Szkla Ujscie (Poland)

Early 2005. Caona PLC, a company controlled by Paul Coulson acquired all of the shares of the 700 shareholders in Ardagh Glass Limited. So now Paul Coulson effectively controls the glass manufacturing business. The defunct site at Ringsend however is owned by South Wharf PLC.

31st March 2005. The DPC serves eviction notices on South Wharf PLC.

2005 South Wharf PLC applies to have the freehold vested in it for a reported €750,000 (see below for inconsistency – was the proposed purchase price €20m or €750,000?).

2005 According to statements in the Oireachtas South Wharf PLC tries to force the freeholder of the IGB site, Dublin Port Company to sell it the freehold (fee simple) in the site for €20m, being 15 times the annual rent as a result of a loophole in the Landlord and Tenant (Ground Rents) Act 1978. At the time the site was reported to be worth €300m. The government rushes through an amendment to the Act in May 2005 (which eventually encompassed the IGB site on 21 June 2005).

2005 Ardagh Glass Limited (more specifically a subsidiary Ardagh International Holdings Limited) buys the UK glass manufacturer Redfearn Glass Limited (formerly Rexam Glass Barnsley Limited).

2006 Paul Coulson’s “investment vehicle” Yeoman International Holdings SA (owned 33% by Paul Coulson and listed in Luxembourg) owns 23% of South Wharf PLC and he owns a further 3.8% in his own name.

June 2006. The DPC and South Wharf PLC agree to put the land on the market  and to abandon litigation. The agreement was that South Wharf PLC would receive 66.4% of the proceeds. An announcement is made to the London Stock Exchange. Jones Lang Lasalle and Hamilton Osborne King (taken over in June 2006 by Savills) are appointed to manage the tender process.

25th October, 2006. Final day for receipt of bids for the IGB site.

January 2007. Sale of IGB site to Becbay Limited. DPC records a net gain in its books of €109.2m after Capital Gains Tax of €26.2m and other costs. DPC’s solicitors are Arthur Cox and auditors are PricewaterhouseCoopers. The recent statement issued by Gordon MRM on behalf of John Mulcahy suggests that JLL with Savills/Hamilton Osborne King acted for both co-owners DPC and South Wharf PLC. The Chief Executive of DPC in 2007 was Enda Connellan whose total remuneration was €290,000.  Mr Connellan resigned in 2009 after 16 years at the helm.

2007 AGL acquires international business of Rexam

2008 AGL acquires Busch and Spreen (Germany)

2010 Ardagh Glass Group PLC operates production sites in 7 countries (40 furnaces)  – Denmark, Sweden, the UK, Germany, Italy, Poland and the Netherlands but not Ireland where its HQ is in Conskeagh. It employs 6500 and produces 13 bn glass containers each year. Ardagh Glass Group PLC is the third largest glass manufacturer in Europe with 18% of the market in 2008.

So with respect to the split of the sale proceeds between the State-owned DPC and South Wharf PLC, here are the questions with which John Mulcahy might be able to assist:

1. If the lease was worth €20m in 2002, what justification could there be for a 13-fold increase in its value in less than 4 years?

2. If the lease was for a very narrow use, glass manufacture and ancillary services, then what right did the leaseholder have to commercial/residential development rights in the sale price?

3. Was the fact that the site stopped operating as a glass facility three years previously factored into the agreement in 2006 as to the split of the proceeds because presumably there was a risk of forfeiture of the lease if the facility was no longer being used? Indeed the DPC has served eviction notices in 2005.

4. If South Wharf did indeed have a 60-year odd unexpired lease in 2006 and approximate annual rent of €1.3m, then how much was the lease for the site worth as an industrial site?

5. How was the fact that only the site’s potential as a commercial and residential development justified the €412m sale price factored into the split. As reported in in the Sunday Tribune “The price meant that the developers could make money only if the site received planning permission for heavy residential and commercial office use. Any other permission would fail to make any returns.” ? The High Court had ruled that the DPC could restrict the use of the site to the terms of the lease.

6. To what extent was the “loophole” in the Landlord and Tenant Act 1978 responsible for the advantageous split in favour of South Wharf PLC.?

Of course you could argue that if John Mulcahy’s company did advise South Wharf PLC and they did get an advantageous split of the proceeds then that is the sort of expertise you’d want at NAMA – better to have him in the tent p*ssing out rather than the other way around. Helping their client build up a case which saw the State lose out might not portray John Mulcahy well to the public but it would seem his company did the best for its client. More importantly you would have to ask what expertise went into the DPC decision to enter into an agreement whereby it received the smaller part of any proceeds from the sale of the site for purposes outside the lease. And also wy did the government take so long to re-act to the loophole in the Landlord and Tenant Act 1978 and what was the effect of the failure by the government to capture the DPC’s assets in the initial emergency amendment?

UPDATE: 2nd August, 2010. The Irish Independent reports that outgoing Chief Executive of the DPC, Enda Connellan,  has been given  a €800,000 pension top-up. While Enda announced his retirement last December, 2009, he will only leave the post at the end of this week to be replaced by new Chief Executive Eamonn O’Reilly.


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Both the Irish Times and the Independent carry today’s leaks from the NAMA Business Plan, the most headline grabbing being that NAMA will now deliver a Net Present Value of between MINUS €0.2bn and PLUS €2.0bn. A second snippet is that the number of “performing” loans is down from 40% in the draft Business Plan to 20% (Irish Times) or 25% (Independent).  If “performing” means repaying interest as it accrues then anything below 17/18% causes a difficulty for NAMA (if NAMA is paying the ECB rate on the majority of its bonds, currently 1% and its interest payment relates to an average of 50% of the nominal loan amount (because of the haircut), and is receiving an average of ECB + 2% from borrowers, then anything below a 17/18% loan interest repayment statistic means NAMA can’t fund its interest payable).

Elsewhere the Irish Times says that NAMA only takes over “property” loans over €5m (that limit only applies to Anglo, BoI and AIB – EBS and INBS have no such limits and of course NAMA is taking over development property and associated loans only) and that confusingly REO paid €600m for Battersea (in fact they paid GBP 400m which might have been worth €600m back in 2006 but is worth considerably less today).

The Independent isn’t much better referring to to the draft NAMA Business Plan being for 20 years (should be 10).

Both papers refer to the €4.8bn in the draft Business Plan as a “profit”. In fact the draft Business Plan didn’t explicitly have a profit but its cashflow over 10 years was PLUS €5.48bn (and indeed if NAMA was wound down in that period then its profit would equal €5.48bn) and its Net Present Value (ie cashflow expressed in 2010 money by applying a discount rate of 5%) was €4.8bn.

On a positive note the Irish Times (though not the Independent) says the Business Plan should be published this week. So we won’t have to rely on leaks and inaccurate reporting. Full coverage will be carried here. A preview is available here.

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