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UDECOTT BOND PUT UP AS COLLATERAL

By Andre Bagoo Sunday, November 18 2012

click on pic to zoom in

FORMER Home Mortgage Bank (HMB) chairman L Andre Monteil approved a $134 million loan deal in favour of CL Financial (CLF) in February 2008, in an arrangement which was backed by the use of several HMB assets – including two million-dollar Udecott bonds valued at $30 million.

Documents obtained by Sunday Newsday show while Monteil remained chairman of the HMB, he approved two financing arrangements with CL Financial in February 2008, while he was still CL Financial (CLF)’s group finance director.

Months after the uproar over the sale of Clico’s HMB shares to Monteil’s Stone Street Capital, Monteil signed a Memorandum of Deposit of Stocks and Shares and other Marketable Securities as backing for a loan CLF took out with Republic Bank on February 8, 2009.

The memorandum was dated February 7, 2008, and signed by Monteil, on behalf of HMB, and Gita Sakal, the former CLF corporate secretary. The document makes clear that the HMB was placing two Udecott bonds, valued at $20 million and $10 million, up as collateral to secure CLF’s loan.

On February 8, 2008, Monteil also signed a similar arrangement, this time involving the use of four promissory notes from a merchant bank in favour of HMB worth $104 million. The CLF loan arrangement totalled at least $134 million. At the time, Monteil was HMB chairman and Udecott’s then executive chairman, Calder Hart, was a director at HMB.

A month after the $134 million deal, Monteil stepped down as CLF’s finance director in March 2008. In November, 2008, he would also step down as HMB chairman, according to an HMB notice published in the press. Hart then became HMB chairman. In addition to providing loan support, HMB invested directly in CLF subsidiary Clico Investment Bank (CIB). According to the HMB 2008 annual report, HMB had placed $36.8 million in CIB.

The report stated, “Net income attributable to equity holders was $18.4 million ($45.1 million in 2007). This decline in profit, although expected given the changed economic environment, was due mainly to the fact that the bank made a provision (net of taxes) of $36.8 million with respect to matured investments held at Clico Investment Bank Limited which to date have not been paid.”

As a precaution, the HMB accounted for these investment note certificates (INCs) as a loss in its books. The INCs — which several state enterprises invested in — remain subject of court action to determine whether the State should refund them. The State has argued that they were not covered by the 2009 CLF bailout, but State enterprises have argued otherwise.

In addition to loan backing and INCs, there were further short-term funds from HMB to CLF totalling $70 million, but these were eventually recouped.

“Also included in cash and short term funds are deposits amounting to $70 million due from CL Financial Limited,” the 2008 report noted.

“At the year end, the value of the collateral exceeded the outstanding loan balance and no provision was required. However, at the date of this report, the outstanding loan balance inclusive of interest has been liquidated via the application of collateral effective December 31, 2009.”

These investments are not disclosed in HMB reports before the 2008 report.

But while HMB made provisions to record the CIB INCs as losses in its books, the same cannot be said for the National Insurance Board (NIB). The NIB invested $675 million in CIB in 2008. At the time, Hart was also NIB chairman.

In the NIB Administrative Report for 2010, which was tabled in the House of Representatives on Friday afternoon, the NIB discloses that it did not make any provision for the possibility of the INCs having to be written off as a loss.

“Over the period July 1, 2008 to June 30, 2009, the NIBTT invested a total of US$99,652,121.29 and TT$45,200,876.71 in secured short-term deposits (Investments Note Certificates) with Clico Investment Bank (CIB),” the NIB says in its report, approved by current chairman Ravi Ramoutar.

“As at the reporting date, all such deposits had matured and the NIB had not received principal and accrued interest that were contractually due. On November 26, 2009, legal action was initiated by the NIBTT against CIB for the aforementioned sums.

“In light of the foregoing, it is management’s opinion at this time that full disclosure rather than impairment recognition is sufficient and appropriate at this time. Consequently, the entire principal and accrued interest on the matured deposits have been treated as a receivable due on demand.”

The NIB invested in HMB, which is a subsidiary of the NIB. For the year 2010, the NIB pumped an investment of $134 million into HMB. Hart resigned from both entities in April 2010.

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