CL Financial (CLICO) too big to fail

[RichD]

What impact will the CLICO bailout have?

Shari DaCosta

Wednesday, February 04, 2009
Shari DaCosta

Bailout - it is a word that has been showing up in news reports ever since companies deemed to be "too big to fail" threaten to do just that. If this holds true, that is, if an institution can be considered too big to fail, then CL Financial Ltd would undoubtedly fit such a description.

Late Friday, when the news broke that Clico Investment Bank (CIB) was taken over by the Central Bank of Trinidad & Tobago, investors and analysts alike were scurrying to figure out what the impact would be. The Central Bank took this decision as part of an endeavour aimed at saving several CL Financial subsidiaries that were facing liquidity issues. All third-party assets and liabilities on CLICO's books, as well as those on the books of its Caribbean Money Market Brokers (CMMB) entity, which it recently acquired from Jamaica Money Market Brokers Ltd (JMMB), would be reassigned to First Citizens Bank, a government-owned institution. The Governor of the Central Bank of Trinidad and Tobago, Ewart Williams said that the Trinidadian government would finance the cash-strapped institution in exchange for collateral and an equity-stake in CLICO. He added that the role of the central bank in this operation will be to act as a vehicle through which the company can execute a shift from its current business model and corporate governance structure.

The overarching question that stands out is, what effect will this government bailout have, not only on CL Financial and its subsidiaries, but on the Trinidadian and regional economy as a whole? First of all, it will certainly not be cheap to dig CLICO out of this hole. It has been reported that the government will have to pay a hefty TT$8-billion price-tag in order to keep CLICO afloat, which is probably the last thing that the Government of Trinidad and Tobago needed to hear right now. The Government has already been faced with the task of repeatedly writing down the country's budget, as the energy-rich nation did not factor in the dramatic declines in energy prices that were to come about following the global economic downturn.

This bailout will have an effect on the country's total level of debt as is likely that the Government will have to issue additional debt instruments in its efforts to recapitalise the banks. This could potentially reverse the country's improvement to its assets exceeding debt by 4.5 per cent of GDP in 2008 from a net debt position of 20 per cent in 2003.

And the question still remains about whether or not the buck will stop here since CL Financial's businesses are so intertwined. That is, although it is clear that the conglomerate is facing a capital issue, it is difficult to pinpoint the level of funding necessary to "cure" its liquidity ailment.

CLICO's problems have already spread to Republic Bank Ltd (TTSE: RBL), Trinidad's largest bank. The bank, in which CL Financial holds a 55 per cent interest, was bombarded with lines of customers demanding huge amounts of withdrawals and closing accounts. As a result, RBL was forced to place a cap of TT$30,000 on cash withdrawals on Monday.

Another factor that cannot be ignored is the effect that a government takeover would continue to have on investor confidence. The news came out of left field, and the fact that CLICO's operations are so inter-linked didn't help matters much, as people didn't know where to look first for potential vulnerabilities. It is clear that the effects of the CLICO situation will not be confined to the Trinidadian borders as CLICO has an interest in 32 companies in the region (including Jamaica) and worldwide. CLICO and its affiliated companies own over 73 million of Lascelles, deMercado & Co's 96 million outstanding shares - a whopping 77 per cent stake - as well as a 40 per cent interest in JMMB, not inclusive of the Caribbean Money Market Brokers unit which it recently sold to CL Financial.

This being said, it will be difficult to foresee the magnitude of the effects that this dilemma will ultimately have on Trinidad's economy, or for that matter, on the regional economy.

However, it is a testament to the fact that no company will be completely immune from the global credit crunch, especially with the globalisation of our businesses, and indeed, our economies as a whole.

[RichD]

Re: CL Financial (CLICO) too big to fail


<span style="font-weight: bold">T&amp;T in CLICO bail-out</span>

It took decades for businessman Lawrence Duprey to build an empire that controlled more than TT$100 billion in assets spread across the globe. It took just a week for it to start becoming unstuck.

As the government and the Central Bank engineered what could amount to a billion-dollar economic bailout for the asset-rich but cash-poor CL Financial conglomerate, group chairman Duprey admitted yesterday that he had underestimated the perfect storm of global and local financial troubles that made it impossible for CL’s insurance flagship firm Clico to pay depositors who wanted their money back.

Central Bank Governor Ewart Williams and Finance Minister Karen Nunez-Tesheira announced sweeping moves yesterday to bail out the banking and financial services subsidiaries of the Port of Spain-based CL Financial Group.
Lawrence Duprey

Lawrence Duprey

The Central Bank has taken control of Clico Investment Bank (CIB) and by next week the assets and liabilities of CIB and another subsidiary Caribbean Money Market Brokers, will be transferred to State bank First Citizens.

Government will also take an equity interest in Clico and British American Insurance in return for an injection of cash to help these companies protect depositors and policy holders.

Clico is the largest insurance company in the country and has more than 100,000 policyholders. It also provides group pension plan services for thousands of employees working in Trinidad and Tobago.

Duprey’s CL Financial will also have to sell some of its lucrative assets in return for Government’s cash and support.
CL Financial will give up its 55 per cent stake in Republic Bank Ltd, (worth billions of dollars), the country largest commercial bank.
Government will gain control of Republic Bank shares through the National Insurance Board and First Citizens.
The State will also assume control of shares in the CL Financial’s energy firm Methanol Holdings Trinidad Ltd, which owns and operates M5000, the world’s largest methanol plant at Pt Lisas.

In the past few weeks Colonial Life Insurance Company and Clico Investment Bank have been strapped for cash and in the past few days, the “bank began to face an unusually high level of withdrawal requests which put a strain on their available liquid resources”, Central Bank Governor Williams told a press conference at the Central Bank tower yesterday.

Duprey said he approached the Central Bank for help on January 13 to raise the issue of financial assistance from the Bank.
Government’s intervention means that policyholders and depositors with Clico life insurance plans and CIB and CMMB investments will be protected by Government.

“The principal objectives are to ensure that resources are available to meet withdrawals of third-party CIB depositors and Clico policy holders; to protect the funds of the depositors and policy holders and in so doing maintain confidence in Clico,” Governor Williams said.

[RichD]

Re: CL Financial (CLICO) too big to fail

<span style="color: #FF0000">'Business as usual at Lascelles' - Bond float puts conglomerate at centre of Clico drama - NCB won't disclose exposure</span>

Published: Wednesday | February 4, 2009

Lavern Clarke, Business Editor

Jamaican investors could be exposed for as much as US$40 million from a bond that Lawrence Duprey's tottering CL Group raised on the local market last June to help finance its US$700 million acquisition of Lascelles deMercado.

Yesterday, NCB Capital Markets/NCB, which floated the 9.25 per cent instrument on behalf of CL Spirits St Lucia Ltd, said 90 investors took up the US$40 million offer that was guaranteed by CL Financial group and Angostura Holdings Limited.

&quot;The debt is current and we have been assured by the principals of CL Financial that debt servicing arrangements, as prevously arranged, will continue,&quot; said Chris Williams, managing director of NCB Capital Markets.

Williams said late last night that NCB would not disclose the banking group's own exposure to the bond issue, nor was it it at liberty to name its partners.

Financial troubles

William 'Billy' McConnell, the Lascelles CEO, said he, too, had received word that the Jamaican operation would in no way be affected by the financial troubles of Clico and CL Financial group, whose debts Trinidad's central bank is in the process of unravelling.

It was clear Tuesday that even Lascelles wanted reassurance about the future, following the Trinidad government's announcement that it was likely that certain assets of CL Financial would be taken over under the bailout plan still unfolding in Port-of-Spain.

&quot;At 10:25 a.m., we heard from Trinidad,&quot; said McConnell, who spoke about an hour later to Wednesday Business. The message, he said, was as follows: &quot;With respect to Lascelles deMercado, it is clear that it is business as usual. Nothing changes for LdM as the parent company seeks to work out its financial arrangements.&quot;

Grey area

McConnell said he has since conveyed the message to staff in the group.

Analysts were somewhat wary of commenting on the development, saying it remained a grey area.

Still, Mark Croskery, the CEO of Stocks and Securities Limited, said while it was unclear how bad the scenario was, disclosures to date indicate that CL's Spirits holdings - Angostura and Lascelles - were not caught up in it, at least not yet.

Croskery is not discounting that that could change, but said: &quot;We, SSL, do not see a default issue here ... even if that has not been made clear in announcements thus far.&quot;

He adds: &quot;Overall, the spirit side needsdisclosure by CL and the regulators. The stock exchanges
should request clarification here immediately if it has not done so already.&quot;

Among Lascelles de Mercado's holding is J. Wray and Nephew, the distillers and blenders of the Appleton range of rums, and it was that jewel that was primarily in Duprey's sight when he used Angostura Ltd, the Trinidad and Tobago distiller, for the foray into Jamaica.

Global Insurance Ltd, another Lascelles subsidiary, was another fit for the CL Financial, which subsequently created CL Spirits to hold the 86 per cent of Lascelles it acquired last year.

The acquisitions was paid for in two tranches in a deal finalised at the end of July 2008.

Angostura ended up paying a discounted US$9.25 per share, instead of US$10.65 per share initially offered for the 96 million ordinary Lascelles shares in issue.

At finalisation of the deal, CL Financial had acquired 86.89 per cent of the ordinary shares and 97.15 per cent of the prefs - an aggregate of 92.01 per cent of voting rights.

Chairman Lawrence Duprey said in January 2008, during a visit here, that the acquisition was likely to be financed by 40 per cent equity and 60 per cent debt.

The CL Spirits bond, launched a month ahead of the deal's closure on July 28, 2008, was backed by Lascelles shares, with proviso that a loan to value ratio of 60 per cent be maintained.

Lascelles shares are now trading at $450 per share - down from a high of $605 last year - which, according to the schedule, means CL Financial has to put up about 12.75 million Lascelles shares as security. That translates to about 15 per cent of the 82.56 million ordinary shares CL owns.

Bondholders will have 45 per cent of their principal investment redeemed in another year - or 18 months from the June 2008 issue - and can also opt for full redemption of principal, but only if NCB and its financial partners also choose, in the latter case, to do likewise.

[Dr.Dudd]

Re: CL Financial (CLICO) too big to fail

For Trinidad it is.
If they fail it will retirn a lot of the Jamaican investmants they do in the last decade, and return them to their previous second grade position.

[RichD]

Re: CL Financial (CLICO) too big to fail

return them to who?

[Dr.Dudd]

Re: CL Financial (CLICO) too big to fail

<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: RichD</div><div class="ubbcode-body">return them to who? </div></div> To the creditors. Mc Cinnell still own about 40% of Wray and Neohew, You don't think he will reclaim it by settling some of the debt!1
And global Insurance may go back to dennis Lalor.