NAMA has receivers appointed to assets in developer’s guarantee

This appears to be a first. Today’s edition of Iris Oifigiuil reveals that NAMA has had receivers appointed to the assets referred to in a loan guarantee provided by Wexford property company, Ellen Construction Limited, the embattled company formerly controlled by brothers Martin Doran and Michael Doran, but which is now subject to a NAMA receivership. In June 2012, NAMA had Declan Taite and Anne O’Dwyer, both of RSM FGS Partnership appointed as receivers to the company.

It’s particularly interesting because we learned last month that Martin Doran’s discharge from a British bankruptcy has been indefinitely suspended. Brother, Michael Doran is scheduled to emerge from British bankruptcy on 10th February 2013 and there is presently no obstacle showing on the UK’s Insolvency Service which might affect that date.

Today’s Iris Oifigiuil states that NAMA has had Declan Taite and Anne O’Dwyer, both of RSM FGS Partnership on 11th January 2013, appointed as receivers to the assets referred to in the guarantee on a loan provided by Anglo.

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European Commission refuses to hand over papers on Ireland’s largest property tax break (because Department of Finance has objected)

Back in December 2008, then-foreign affairs minister, Micheal Martin had to sheepishly approach the European Commission for retrospective approval of tax incentives given by the State for the Treasury Holdings development of the Ritz Carlton hotel in Powerscourt, county Wicklow in 2006 – “sheepishly” because he was late in making contact with the Commission about the scheme and the Commission was forthcoming in expressing its displeasure. But nonetheless, the Commission granted retrospective approval, and a number of well-heeled individuals including TV and radio presenter, Pat Kenny who was an investor in the scheme, will no doubt have breathed a sigh of relief that Minister Martin had saved the day, otherwise the Revenue Commissioners might have been knocking on the investors’ doors looking for the return of the tax relief.

You might wonder why Ireland had to bother to seek approval in the first place for a domestic tax break – the answer lies in the scale of the tax break – a whopping €212m, so big that Ireland had to get approval under Commission state-aid rules, and it is believed to be the largest individual property tax break granted by the last government.

The whole episode was buried until November 2012 when examiners were appointed to the hotel development, and the issue of the tax break again reared its pretty head. If the hotel failed, it seems that the Revenue Commissioners would automatically seek the return of tax reliefs previously granted.

And in the interests of transparency and providing value on this blog, a formal request was made to the European Commission on 20th November 2012 for the documents which pertained to the case – if nothing else, they would have reminded us of the hubris of the Celtic Tiger boom. There was an initial response from the Commission saying it would need more time than normal to provide the documents and the deadline was set for last Friday 11th January 2013. A response was received which said that the Commission was still consulting with the Irish authorities, the Department of Finance presumably, about the release of the requested documents.

An so-called “confirmatory application” was made by the blog, which essentially means that a request was made to “speak to the supervisor”. Today, a response has been received which helpfully sets out the documents that pertain to the case but says that the Irish authorities have objected to the release of the information.

Why?

According to the Commission,

“Pursuant to Article 4(1)(b) of Regulation 1049/2001, access to a document where disclosure would undermine the protection of the privacy and the integrity of the individual, in particular in accordance with Community legislation regarding the protection of personal data shall be refused. The requested documents contain a large volume of personal information whose public disclosure would undermine the protection of the privacy and the integrity of the individual”

And

“Pursuant to Article 4(2), first indent of Regulation 1049/2001, access to a document where disclosure would undermine the protection of commercial interests of a natural or legal person, shall be refused. The requested documents contain a large volume of commercially sensitive information whose public disclosure would undermine the protection of the commercial interests of the person who provided them”

So what now?

A complaint was made to the European Ombudsman yesterday, and this latest communication will be appended to that. The Ombudsman may order the release of some or all of the documents. They are a valuable record of what is believed to be the biggest ever property tax break granted in Ireland.

But the document listing itself is of interest and reveals for the first time, that the decision in 2010 to retrospectively approve the state aid was by no means the end of the matter, and it seems that there were further exchanges between the “Irish authorities” and the Commission which only ended in May 2011.

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NAMA considering future of QIFs, now that REITs are being introduced

Yes, it’s acronym Friday! You might recall that this time last year, NAMA announced that it was setting up so-called Qualifying Investor Funds (or “QIFs”) which are property funds where investors with more than €100,000 to spare can invest in the fund, to which NAMA will sell property. In summary, it’s a means for NAMA to sell its property to syndicates of investors. NAMA even tendered for administrators and managers of the QIFs and committed to launching at least one QIF in 2012. Things seemed to drag in 2012 and it was not until November 2012, that NAMA appointed a QIF manager, Mercer Global Investments Europe – related to the crowd doing the expert report on bank pay and perks for Minister for Finance, Michael Noonan right now, and also part of Marsh and McLellan.

And then in December 2012, Minister Noonan at last announced Real Estate Investment Trusts (or “REITs”) – which are similar to QIFs but have a few differences, they were promised in the Fine Gael General Election manifesto in 2011, but despite several chaser questions from the Opposition in the past two years, it wasn’t until December 2012 that the Minister announced them and they will now be imminently introduced in the forthcoming Finance Bill 2013.

However, it now appears that NAMA is considering the future of QIFs after the announcement of REITs and the Agency may well decide to abandon the QIFs altogether.

What does all of this mean? REITs will be more transparent and will be quoted on the Irish Stock Exchange it seems. They will also be available to smaller investors, so if you fancy a punt on Irish property, you will be able to satisfy that weakness with hundreds of euro. Your stake in a REIT is akin to a share in a company and can be bought and sold at a market price, which with any luck will be liquid – contrast with trying to sell a house in a day! QIFs are less transparent, have a minimum investment of €100,000 and as far as I can see, were only considered by NAMA because of the foot-dragging in introducing REITs.

Here are the full parliamentary questions from Sinn Fein’s jobs, enterprise and innovation and justice, equality and defence spokespersons Peadar Tóibín and Deputy Pádraig Mac Lochlainn.

Deputy Peadar Tóibín: To ask the Minister for Finance further to his announcement of introducing legislation to give effect to Real Estate Investment Trusts, if he has consulted with the National Asset Management Agency with respect to its planned launch of Qualified Investor Funds; and if NAMA remains committed to launching QIFs in view of his announcement with respect to REITs..

Minister for Finance, Michael Noonan: I am advised by NAMA that it is very supportive of the Government’s decision to introduce REITs legislation. Officials in my Department have been in regular contact with the Agency in relation to the introduction of QIF’s and I am advised that the Board of NAMA is currently considering its approach in light of the forthcoming REITs legislation.

Deputy Pádraig Mac Lochlainn: To ask the Minister for Finance further to his announcement of introducing legislation to give effect to Real Estate Investment Trusts, if he will outline how REITs will be regulated here; the persons will be responsible for regulation and the competencies and qualifications needed for appropriate regulation of REITs..

Minister for Finance, Michael Noonan: The details of the legislation which will provide for Real Estate Investment Trust (REIT) status for qualifying public limited companies will be published in Finance Bill 2013.

An Irish REIT will be subject to relevant provisions of the Companies Acts, and will be required to comply with the requirements of various European Directives including the Prospectus Directive, Transparency Directive, Market Abuse Directive and the Markets in Financial Instruments Directive (MiFID).

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Revenue Commissioners will not be valuing your home for property tax. You will – Minister Noonan

“The Revenue Commissioners will not be valuing properties for LPT purposes except where there is a dispute about a valuation provided by a taxpayer, which, because of the banding system, is expected to be in a minority of cases.” Minister for Finance, Michael Noonan responding to questions in the Dail this week

The new “Local Property Tax” as Minister for Finance Michael Noonan calls it, or “Bondholders and Bankers’ Bailout Tax” as Deputies Richard Boyd Barrett and Joe Higgins unsuccessfully tried to have it amended to, during the Dail debate in December, is set to dominate headlines for the next year. Even speculation on detail of the tax is enough to garner front page splash headlines, like the Independent recently claiming that the Revenue Commissioners would be initiating valuations by informing house-owners of its opinion and leaving it to the householder to challenge.

This week in the Dail, we learned from Minister Noonan that the Revenue Commissioners  – Irish tax authorities for our international audience – would not be originating valuations. That’s your job. The Minister says “Revenue is, however, actively preparing valuation guidance and developing tools to assist liable persons in assessing the value of their property which will be made available as soon as possible.  Where these guidelines are used honestly, the property valuation will not be challenged by Revenue in accordance with its normal Customer Service Charter.  The guidelines will include drawing property owner’s attention to the publicly available property price register which includes some 62,000 of reasonably recent property prices, and a method to help property owners establish average/indicative values for properties in different locations.“

We also learn that Government politicians are going to be promoting the “local” element in “local property tax”. When the tax was announced in December 2012, Minister Noonan said he was considering “ring fencing” the tax so that all property tax would be spent locally. He has now confirmed that it is his intention to ringfence property tax for local use –  in a response to a question from Fianna Fail’s public expenditure and reform spokesperson Sean Fleming yesterday, Minister Noonan said “The intention is that the full amount of the tax will be spent where it is collected.  It is a major reform in local government that those who pay most will have funding for the most services.  In addition, from 2015, local councillors will have discretion to increase or reduce the rate of the tax by up to 15%.  That will give real power to councilors”

The full text of the above question from Deputy Fleming is not yet available. These are the two parliamentary questions from Sinn Fein’s arts, sports and tourism and health spokespersons Sandra McLellan and Caoimhghin O’Caolain.

Deputy Sandra McLellan: To ask the Minister for Finance the methodology and process that will be used by the Revenue Commissioners in the assessment of the property tax on private homes, local authority properties and those owned by approved housing associations..

Deputy Caoimhghín Ó Caoláin: To ask the Minister for Finance if he will provide an update on the discussions between his Department and the Revenue Commissioners on the detail of the valuation and collection of the property tax.

Minister for Finance, Michael Noonan: I propose taking Questions Numbers 18 and 37 together.

My Department is in regular contact with the Revenue Commissioners with regard to the implementation of this tax through the Interdepartmental Group which was set up to oversee the introduction of Local Property Tax (LPT) and through bilateral discussions with Revenue.

The legislation governing the Local Property Tax is contained in Finance (Local Property Tax) Act 2012 and was signed into law by the President on 26 December 2012.  The Act sets out how the tax is to be administered and also provides how a residential property is to be valued for LPT purposes, and I set out at some length in a reply to a series of questions yesterday how various aspects of the tax will be administered.

I am informed by the Revenue Commissioners that LPT is a self-assessment tax so in the first instance it is a matter for the property owner to calculate the tax due based on his or her assessment of the chargeable value of the property.  The Revenue Commissioners will not be valuing properties for LPT purposes except where there is a dispute about a valuation provided by a taxpayer, which, because of the banding system, is expected to be in a minority of cases.

Revenue is, however, actively preparing valuation guidance and developing tools to assist liable persons in assessing the value of their property which will be made available as soon as possible.  Where these guidelines are used honestly, the property valuation will not be challenged by Revenue in accordance with its normal Customer Service Charter.  The guidelines will include drawing property owner’s attention to the publicly available property price register which includes some 62,000 of reasonably recent property prices, and a method to help property owners establish average/indicative values for properties in different locations.

For 2013, the charge to LPT is based on the market value of the property on 1 May 2013.  In addition, in order to provide necessary certainty, this initial valuation of the property on 1 May 2013 will be the value of the property for the purposes of calculating the LPT charge for all years up to and including 2016.  This value will hold regardless of improvements, extensions etc. to the property in question.  Likewise, where a property is sold during this period, and the value of the property has increased substantially, there is no additional liability to LPT, once the initial valuation has been given honestly and fairly.

I am advised by Revenue that beginning in March 2013, they will be issuing property owners an LPT tax return, an information booklet and a Revenue Estimate of LPT.  Having established the market value of their property, property owners are obliged to complete the LPT return in which they calculate the amount of tax they owe and state how they will pay the LPT due from a range of options.  For 2013, the LPT return, if completed in paper form, must be submitted to Revenue by 7 May 2013, whereas, if they complete the form online, it must be submitted by 28 May 2013.

I am also informed that the payment options available to the property owner include payment in full using a debit or credit card, a single debit authority to deduct from a nominated bank or by way of cash payment to certain service providers.  Alternatively, phased payments can be made by the property owner using direct debit, cash payments or by deduction at source from employment or occupational pension income or from certain payments from the Department of Social Protection and the Department of Agriculture, Food and the Marine.

Where a property owner fails to submit his/her LPT return by the relevant due date, the legislation provides that Revenue can enforce collection of an estimated amount of LPT.  The Revenue Commissioners advise that this Revenue Estimate of LPT is not a valuation of their property nor should it be regarded as an accurate calculation of the amount of LPT that they should pay.  Once property owners meet their obligations by valuing their property, submitting their return and advising Revenue of their payment preference within the relevant time limits, the Revenue Estimate of LPT notified to them is no longer relevant.

In general, the Finance (Local Property Tax) Act 2012 provides that local authorities are liable for the tax in the same way as any other residential property owner unless the properties are used to accommodate people with special housing needs.  An approved housing association will be similarly liable for LPT on any residential properties that they own unless these properties are used to accommodate people with special housing needs, provided the housing association operates as a charity and has been granted an exemption for tax purposes by Revenue.  I am further informed by the Revenue Commissioners that they are currently liaising with the Department of the Environment, Community and Local Government and with the voluntary social housing sector to establish how local authorities and voluntary housing organisations, respectively, will notify any LPT liability that they have to Revenue and how they will pay the amount due.

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NAMA open to offers of third party financing and joint ventures for its projects

As an asset management company, NAMA shouldn’t really be much different to other asset management companies, of which there are many. NAMA will tell you that it has five asset management strategies for the property underpinning its loans (1) sell (2) rent (3) develop (4) mothball (5) demolish but until now, it has not been widely publicized that NAMA is open to joint ventures with third parties to deal with its assets.

This week in the Dail, the Sinn Fein jobs, enterprise and innovation spokesperson Peadar Tóibín asked the Minister for Finance, Michael Noonan to outline NAMA’s strategy for attracting third party financing to help develop its properties.

The surprising response – “surprising” because I cannot think of a single instance of it happening so far – was that NAMA is indeed open to joint venture arrangements including financing. NAMA says that it is particularly appropriate to assets which have been fully taken over and are on NAMA’s balance sheet – at the end of Q3,2012 NAMA had €7.2m in property assets on its balance sheet, remember that the vast, vast majority of loans that NAMA forecloses leads to property being managed by receivers/liquidators and doesn’t come onto NAMA’s balance sheet. As NAMA proceeds through its life-cycle this amount will grow.

So, if there is an unfinished ghost estate and you have funds and the desire to work with NAMA, then why not contact the Agency. If there is a derelict building which you think could be commercially developed, why not talk to NAMA to tell them what talents you can bring to the table. Of course, it would be helpful if NAMA told you what properties it owned or controlled. You’ll find the foreclosure listing here, but there is no record of what comprises the €7.2m of property presently on NAMA’s balance sheet.

This is the full parliamentary question and response.

Deputy Peadar Tóibín: To ask the Minister for Finance the strategy of the National Asset Management Agency in attracting third party investment to participate on a risk basis in the development of property under the auspices of NAMA..

Minister for Finance, Michael Noonan: I am advised by NAMA that it utilises a number of asset management strategies to monetise its portfolio, including the sale of individual assets or portfolios of assets and loans sale.   A key element in NAMA’s strategic planning also is recognition of the need to invest to preserve and enhance the value of its assets in line with anticipated as well as current demand conditions.   NAMA advises that, in this context, it considers a range of project financing and delivery mechanisms, including joint venture arrangements where these make commercial sense.   In particular, where NAMA acquires properties directly onto its balance sheet, its preference would be to form joint ventures with suitable partners who, along with NAMA, can introduce upfront equity and who, in turn, can avail of third party or NAMA debt financing.  NAMA will consider joint venture development arrangements with suitable counter-parties on commercial terms that mitigate development and commercial risk for NAMA and optimise the financial returns for the taxpayer.

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Bank of Ireland CoCos sale means Government has to impose €64m of additional cuts and taxes in 2013

“The transaction was well received in the market and indeed the bond traded a few points higher in the after-market during its first few days of trading. This reflects a market recognition of a very successful transaction for Ireland, one in which we have exited this element of support to our banks with a profit. It points to a recognition that Ireland is successfully working to correct the very deep failings that have affected us in the past number of years.” Minister for Finance, Michael Noonan responding to parliamentary questions this week.

If Minister for Finance, Michael Noonan thought he had drawn a line under the one of the largest disposals of state assets since he came to office, with two perfunctory statements – here and here – issued on the Department of Finance website, well, it seems he has another thing coming.

In truth, there have been larger disposals of loan portfolios at the state-guaranteed banks – Anglo, AIB and Bank of Ireland have disposed of loans relating to US properties which have topped €10bn. But at this stage, the disposal of the €1bn of so-called “Contingent Capital Notes” or CCNs of CoCos, last week was a major event. And a few sentences on 9th January 2013, firstly announcing the imminent sale and then confirming the sale a few hours later, were never going to be enough in a democracy which is sharpening up after the catastrophic decisions in this crisis.

In the Dail yesterday, Minister Noonan confirmed the effect of the disposal was negative in terms of this year’s deficit. In oral questioning he confirmed the proceeds from the sale will be 100% used to pay down national debt, and unlike the imminent disposals of Bord Gais Energy, none of the proceeds from the sale of the Bank of Ireland CCNs will be used to stimulate the economy. The sale will INCREASE the deficit in 2013 by €64m comprising lost interest on the CCNs of €100m less the interest reduction in servicing the national debt of €100m less the interest reduction in servicing the national debt of €36m – seems we pay an average of 3.6% interest per annum on our national debt so the €1bn repayment will cut €36m from the annual cost of servicing the national debt.

But when challenged yesterday in the Dail during oral questions yesterday, about this detrimental effect on the deficit in 2013, Minister Noonan shrugged it off saying December 2012’s better than expected Exchequer figures would take care of it. Try having the cuts to the respite care grants reversed using that line!

In oral questions yesterday, the role of Michael Torpey in the transaction was queried. Michael was until this week the head of the Shareholder Management Unit at the Department of Finance. Minister Noonan announced his move to a plum role at Bank of Ireland this week. Minister Noonan said that Michael was on holiday in Australia since 14th December 2012, and that he will not be taking up his role at Bank of Ireland for three months, which the Minister says provides a “cordon sanitaire”. It was stressed during questioning that no aspersions were being cast upon Michael Torpey. Sinn Fein last night challenged the Minister on the “cordon sanitaire” and pointed to the 2-year break promised in the Programme for Government.

Minister Noonan did give us all a good laugh yesterday when he claimed the fact the CCNs traded at above the sale price was evidence of “a very successful transaction”. Has it not occurred to him that it was evidence that the CCNs were sold below market value, which begs questions about whether the market had adequate notice of the sale.

Minister Noonan can expect weeks of questioning on the transaction, and yesterday there were at least three questions from Sinn Fein’s finance spokesperson Pearse Doherty and Labour TD, Kevin Humphreys, which revealed little about the actual transaction, though we learn more about its effect on the deficit, and that NCB was seemingly the sole third party engaged by the Department of Finance.

Deputy Pearse Doherty: To ask the Minister for Finance following the announcement that negotiations to sell Bank of Ireland Contingent Capital Notes had concluded, if he will confirm the way he ensured that all potential buyers of the CCNs had equal access to all information required to make an investment decision.

Deputy Pearse Doherty: To ask the Minister for Finance following the announcement of his Department on 9 January 2013 that negotiations to sell €500 million to €1 billion of Bank of Ireland Contingent Capital Notes has concluded, if he will confirm if the sale had been discussed by the Board of Bank of Ireland; the date or dates on which it was discussed and if he had been lobbied or received requests from other investors in Bank of Ireland or their representatives urging a disposal of the CCNs..

Deputy Kevin Humphreys: To ask the Minister for Finance if, in respect of the sale of the €1 billion note of contingent capital in Bank of Ireland, the sale was handled by the National Treasury Management Agency or his Department; if the sale was advertised; the way the sale will impact on the Exchequer deficit for 2013; and if he will make a statement on the matter.

Minister for Finance, Michael Noonan: I propose to answer questions 176, 177 and 208 together.

As announced by my Department last week the State was successful in disposing of its entire €1 billion holding of Contingent Capital Notes (CCN’s) in Bank of Ireland. The transaction followed an initial approach by a number of investment banks to the Department late last year which indicated that there was sizeable investor interest in the State’s CCN instruments and particularly the holding in Bank of Ireland. The Sale was managed by officials in the Department’s Shareholder Management Unit, with many years’ experience working in financial markets and was not only timed to take advantage of the improving sentiment towards Ireland and its banks but the huge rally seen in international debt markets which has continued into 2013.

The transaction when announced saw the State presented with the opportunity to dispose of a minimum of €500 million of its position at a price of par. This stemmed from an underwrite provided by the consortium of banks – UBS, Deutsche Bank and Davy – having done a preliminary assessment of market appetite for the notes. In the end the book build process generated significant excess demand to enable the State to dispose of its entire holding in the bonds at a price of 101% of their par value plus accrued interest. This generated a profit for the State of €10 million. Taking account of the coupon paid to the State last year, the taxpayer has earned a total return of over 15% in the space of 18 months.

My officials had full visibility during the book build and pricing phases and were also provided with some valuation advice from NCB Stockbrokers which helped inform their judgement. The transaction was well received in the market and indeed the bond traded a few points higher in the after-market during its first few days of trading. This reflects a market recognition of a very successful transaction for Ireland, one in which we have exited this element of support to our banks with a profit. It points to a recognition that Ireland is successfully working to correct the very deep failings that have affected us in the past number of years. In recognising this, however, we must also acknowledge that this after market price is for a very small volume of stock compared with the €1bn size of the transaction.

The transaction settled on Tuesday the 15th of January and the State was paid proceeds of just over €1,056 million, comprising principal of €1,000 million, interest accrued of over €46 million covering the period 29th July 2012 to date, and a profit of €10 million. As we will use the proceeds of this sale to reduce the State’s indebtedness, it will reduce the critically important debt/GDP ratio by 0.6 per cent.

The Exchequer effect for 2013 is as follows.  Due to the reduction in our national debt we have a consequent saving in debt servicing of about €36m this year.  We also received €46m interest instead of the €100m interest we had expected.  This means that the Exchequer is down about €54m on the receipts side.  Taken together with the debt service saving, the net impact is only about €18m in Exchequer terms in 2013.  The 2014 Exchequer effect is estimated to be €64m which is the interest differential between the Exchequer borrowing rate and the Bank of Ireland interest rate.

The State’s  investment in these instruments dates back to the 2011 PCAR exercise, and the successful exit from a large portion of this position  represents another step along the road to normalising the State’s relationship with the banking sector. It is government policy to separate the State from its’ banks, a policy which I believe has shared support in this house. This policy will see the State this year remove the guarantee of bank deposits and liabilities which dates back to September 2008 and it also requires us to exit our bank investments over time and when conditions allow. It is true that as the CCN investments were earning the State a generous 10% return per annum, the exchequer will have to forgo this income but will also reduce its risk exposure to the banking sector. The State made this investment only out of necessity and it is pleasing that we have been able to exit this portion of our investment early and profitably.

I can further confirm that I was not lobbied nor received requests from other investors urging a disposal of the CCN’s while Bank of Ireland have informed me that as one would expect with a transaction of this nature, it was discussed and considered at appropriate levels in Bank of Ireland including at the Board. However the Bank does not provide further disclosure on such deliberations.

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