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Archive for September 10th, 2012

As Sean Dunne is finding out in his new home of Connecticut in the north-east United States and as Bernard McNamara found out in a remote Nigerian state, the world these days is a small place. And Treasury Holdings founders, the dynamic duo of Richard Barrett and Johnny Ronan seem to be realising that the distance between Singapore and Dublin 2 has been reduced to the click of a mouse or the press of the “send” button on an email.

Treasury Holdings itself is the massively insolvent Irish property group founded by the dynamic duo, but which is now seemingly teetering towards total collapse, though that doesn’t stop claims that a White Knight can be found. But Treasury Holdings is/was just a predominantly Irish operation, though with some connections to UK property. Over on the other side of the world, the dynamic duo had created an entirely separate operation, Treasury China Trust (TCT) to develop property in China.

Never the twain would meet, but it seems that now they two have met spectacularly. 30% of TCT is owned by Messrs Ronan and Barrett who NAMA is personally pursuing for repayment of loans in Ireland. TCT has a market capitalisation today of €166m so the 30% stake equates to about €50m, enough for NAMA to have a intense interest in goings on at TCT.

NAMA isn’t the only creditor pursuing Treasury Holdings in Ireland – Belgian bank KBC is seeking the repayment of €75m and during the course of hearings last month to have Treasury Holdings wound up, it emerged in a surprise announcement on 28th August, 2012 that Treasury Holdings had just sold two companies to Richard Barrett. The sale caused consternation at NAMA and led to the Agency changing its position and giving its support to the winding up petition.

And mystery and controversy continue to surround the sale of the two companies (detailed in the box below)

Messrs Barrett and Ronan seem to have been concerned that if Treasury Holdings in Dublin was wound up, there would be a knock-on effect on the China operation, specifically with a company called Forum Partners – where incidentally controversial former NAMA employee Enda Farrell works – which has loaned money to TCT but a term of the loan which has €44.5m currently outstanding, is that if control of Treasury Holdings changes, the loan to TCT can be called in on demand, and TCT doesn’t have the cash. This all seems bizarre, we don’t know why Forum Partners would require such a clause given the claim that TCT and Treasury Holdings are two separate companies. Nor exactly why the sale of the two companies was necessary to prevent the triggering of the demand.

The Irish Times reported last week concerns that the price paid by Richard Barrett was significantly less than a valuation of the companies earlier this year by Goldman Sachs.

In response, TCT yesterday issued its own statement (extract shown at top), a statement which doesn’t deny any report or claim or allegation made in the Irish media. It is almost redundant in cautioning investors about the accuracy of media reports. Perhaps the real purpose of the statement is to fire a shot or two across the bows of the “former independent non-executive directors” and presumably one of the rights being reserved by the Board of TCT is the right to take legal action against former directors.

The stock price or unit price of TCT has halved in the past year from 2 Singapore Dollars to just SGD 1.035 today, which is a concern when the company is operating in a buoyant market like that in most parts of China and the results for the first six months of 2012 seemed healthy enough.

Although NAMA didn’t make any comment on the news that two Far Eastern companies had been sold to one of the founders of Treasury Holdings, you might deduce the NAMA decision to change from neutral to supporting the KBC winding up application indicated the surprise and unease felt by NAMA at the news.

With almost daily reporting on developments in TCT in the Irish media, complaints about TCT to the Singapore Stock Exchange, upset former directors and irate Singaporean investors, it seems as if TCT’s operations will remain under close scrutiny for some time to come.

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The Treasury Holdings Sale of Two Companies to Richard Barrett
The players: Johnny Ronan and Richard Barrett, the founders of Treasury Holdings and holders of a 30% (combined) shareholding in Treasury China Trust (TCT). Richard David, the CEO of TCT and a supporter of Messrs Ronan and Barrett. Stuart Leckie, Jen Shek Voon and Ray Horney, former directors of TCT – described as “sacked” directors who have made a governance complaint to the Singapore Stock Exchange where TCT is listed.
What: Sale by Treasury Holdings of two companies (1) Treasury Holdings Real Estate PTE Limited and (2) Treasury Holdings (Shanghai) Property Co Limited to a company controlled by Richard Barrett called Oriental Management Services Limited, a company incorporated in Jersey.
How much: €2.263m, payable in tranches over two years
Independent valuations?: According to Richard Barrett, yes there were two independent valuations by unnamed Irish “Top 10” accountants. Apparently confidentiality prevented the naming of the two accountants.
Financial performance: The two companies earned €15.6m in fees in 2011. The companies have a net asset value today of €1.9m. Apparently the valuations projected profits of  €1.68m in 2012, €108,000 in 2013, (€96,000) in 2014, (€313,000) in 2015, and €28,000 in 2016 – in other words, profit of €1,407,000 in 2012-2016.
When: between 24th-27th August 2012.
Approval: The subsidiaries were owned by Treasury Holdings which is controlled by Messrs Barrett and Ronan. TCT was notified of the sale and has said “the board considered that such transfers were in the best interest of [TCT] unitholders as it removes one of the change in control triggers for the bonds” A minority shareholder by the name of Mano Sabnani had complained earlier in August in the Singapore media about poor corporate governance at TCT.
So where’s the beef: According to the Irish Times, the two companies were valued “earlier this year” by Goldman Sachs at “a very material multiple of €2.3m” with a suggestion the valuation “might have been as high as €31.8m”. The implication is that Richard Barrett obtained an asset below its true value, and given NAMA’s potential claim on shares held by Johnny Ronan and Richard Barrett in TCT, that means NAMA might be bilked in recovering sums claimed.
And has Richard Barrett gotten away with it scot-free? Firstly Richard Barrett is saying he paid a fair price for the companies and that he “has nothing to hide”, and secondly he has been ordered by the Irish courts to produce an affidavit in September detailing the sale, which might lead to the sale being challenged and possibly reversed.

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We have become used to broken promises in this financial crisis. Remember Enda Kenny in December 2010 after the Greens had pulled the plug on the previous administration and political parties were on an election footing. Remember “Mr Kenny said there is no question of defaulting on sovereign debt or on senior bank bonds that are covered by the Guarantee but he believes that the taxpayer can save between €12-17bn by negotiating a sharing of losses with the unguaranteed senior bondholders”. Of course that promise became more nuanced in the subsequent manifesto a month later but no-one ever disabused us of the notion that this government would pursue to success a significant write-down on the remaining senior bondholder debt. And in June this year, Enda emerged from the all-nighter of the EU summit to tell us that some people had just found out he was not someone to be tangled with and that we could expect a deal on our bank bailout by October 2012 – that was the promise owned by Enda and his government, not Olli Rehn or Eamon Dunphy or the Tooth Fairy. Though it seems today that all three might be blamed for slippage in the date.

Fast forward 10 weeks and where are we with the negotiations? Seemingly no place. Presumably that’s why, a week ago, we had the leak of the letters from the ECB to Ireland’s finance minister in October/November 2010 – not a comprehensive leak, and we still haven’t see the precise language used. But can anyone be in any doubt that the decision to show the letters to the Irish Times was taken at the highest level. Two can play the extortion game it seems, and the ECB should understand that as surely as a nod is as good as a wink to a blind man, the letters will be leaked in full if the ECB doesn’t start to get serious in these negotiations.

Yesterday, courtesy of RTE’s This Week radio programme, we had an update on the negotiations from three individuals with knowledge of the matter – Governor of the Central Bank of Ireland, Patrick Honohan, from transport minister Leo Varadkar and from Sharon Bowles – Sharon is a British MEP but her relevance to Ireland is that she chairs the Committee on Economic and Monetary Affairs at the European Parliament and is accordingly at the heart of the efforts to resolve the crisis across Europe. What we learned was that Patrick Honohan is shifting the responsibility for negotiations emphatically into the court of the government, Patrick is assisting all he can but it’s the Government carrying this baby. Patrick thinks there will be a deal, but what and when? Who can tell, maybe after the Spanish deal. Leo thinks there will be a deal before the next promissory note payment is due in March (2013). Sharon thinks there will be a deal in November because certain (unspecified) arrangements come up for renewal then.

Because the negotiations haven’t been concluded, attempts to extract detail from the participants will inevitably be met with responses which mention not giving away our position. However at this stage, we should at least be able to get an answer to one question – who is the Santa Claus who will fund relief in Irish bank debt? From what I can see there is no Santa Claus and all that is being pursued is a sale of the Irish stake in Bank of Ireland and AIB, worth about €8bn according to the NTMA and for the gross interest rate on the promissory note to be reduced, something which is irrelevant as the interest rate affects what the Department of Finance (which we own) pays IBRC (which we also owns) and there is no net effect on the ultimate debt position of the State if the interest rate is reduced. If there is a Santa Claus which will compensate Ireland above and beyond the present value of our banks, then 10 weeks after the EU summit announcement, we should at least expect that Santa Claus to be identified.

On October 1st, exactly three weeks away, AIB which we 99.8%-own will pay €1bn to senior unsecured bondholders (bond reference XS0455308923). We have so far shoveled €20.7bn into the AIB group which of course merged with EBS last year. Without a Santa Claus, here is a representation of how we might be reduced to getting some relief on our debt.

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