Tuesday 25 October 2016

Unravelling the threads of Nama's tailor-made NI deal

Published 02/10/2016 | 02:30

Nama chairman Frank Daly made much use of the word ‘bespoke’ when speaking before the PAC
Nama chairman Frank Daly made much use of the word ‘bespoke’ when speaking before the PAC

Both the C&AG and Nama executives really slugged it out, albeit in separate sessions, at the Public Accounts Committee during the week.

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On the question of valuing Nama's northern property portfolio, we didn't really learn anything new from the exchange that both sides had with TDs and senators. However, this issue was never going to be fully resolved anyway.

Valuing property is not a science. Quantitative methods are applied but ultimately it is a judgement call.

In that sense, Nama chairman Frank Daly may have just about won the argument but only on penalties and only after extra time had been played.

Nama was on much shakier ground when it came to its handling of the sale process, its motivation for selling it all in one lump for €1.3bn and its complete lack of curiosity about when northern businessman Frank Cushnahan may have struck a deal with Pimco involving a success fee for him.

When it came to the sale process, Frank Daly used the phrase "bespoke". He clearly meant that if the sale of Project Eagle didn't match its customary sale process, it was only because it was a one-off, distinctive event.

Unfortunately for Daly, the definition of "bespoke" is a little more specific. Something is bespoke when it is "made for a particular customer or user". It goes on to say: "It may be altered or tailored to the customs, tastes or usage of an individual purchaser."

Designing a process for a customer or purchaser is not what Nama should be about. It should be designed for equal bidders.

Northern firm Brown Ruddnick came up with the idea of buying the whole portfolio in one go. First Minister Peter Robinson was convinced of the merits of Pimco buying it all, despite previously crying foul with the Irish government a few years earlier about a single powerful owner being in control of so much of the Northern Ireland property market.

Peter Robinson wrote to Michael Noonan who passed the correspondence on to Nama.

Then we had a sales process which involved no specific valuations of the individual properties and amendments to its normal policy.

This certainly does look "bespoke".

Frank Daly argued that it was bespoke - but with all the necessary checks and balances retained in the process.

Yet when Pimco disclosed details of a success fee due to Frank Cushnahan if the purchase was successful, Nama wasn't even curious enough to ask when this had been agreed.

Nama decided to tell Pimco to step back from the purchase or it would be forced out.

Yet Frank Daly questioned in the PAC whether Frank Cushnahan actually had a success fee in place, quoting Cushnahan's lawyers that he didn't.

Either he did or he didn't. Pimco seemed to believe he did. When that fee was negotiated was very significant because of Cushnahan's former role on the advisory board of Nama. Yet Nama didn't even enquire.

Nama had a responsibility to establish when that deal was struck. It didn't. Nama says it had a responsibility to assess the impact it might have on the sale of Project Eagle and it did that. But Nama's responsibilities didn't end there.

Instead, it ploughed on with the sale regardless and there is no evidence in the board minutes of Nama that it seriously considered pulling the sale and re-launching it later or in a different form, such as in three or four bundles of loans.

The reality here is the context of what Daly described as the "sensitivities" of the north/south situation.

Nama also disclosed that it was having an "increasingly fractious engagement with Northern Ireland debtors".

Was it afraid of a fight or just afraid of a fight in the context of northern politics? That is of little comfort to southern developers, who Nama was not afraid to take on.

Nama said it had partially foreclosed on two of the big developers in the North, who were clients of Frank Cushnahan.

The more you look at it, Nama took an opportunity to "get out of Dodge", as one TD put it.

It also begs the question, was Project Eagle the only "bespoke" deal Nama did?

Billionaire Malone is not finished buying Ireland

Rancher, billionaire and cable TV mogul John Malone has snapped up another three hotels in Ireland. His buying spree and nose for a commercial opportunity in Ireland know no bounds.

He owns Humewood Castle in Co Wicklow and is an investor in The Westin and Intercontinental Hotels in Dublin. He also bought Tony O'Reilly's former Kildare estate, Castlemartin.

Malone is the biggest landowner in the United States, with 2.2 million acres of ranch, forest and wild land across several states. That is about the size of Co Mayo.

His purchase of the Morgan Hotel, the Beacon Hotel and the Spencer Hotel in Dublin for around €150m will deliver a much-earned return for hotelier Paul Fitzpatrick. He is backed in the projects by Patron Capital Partners.

Fitzpatrick bought the Morgan in Temple Bar back in 2000 and turned it into a very successful boutique hotel. The Morgan is owned by a company called Allengage Developments, which had tangible fixed assets valued at €18.8m in 2014.

Fitzpatrick was also there at the start of the Beacon Hotel, which had a carrying value of €13.5m on its books.

Patron became involved in the Spencer hotel just three years ago when it was bought for around €33m. Patron's firm in Ireland is owned by a trust whose parent company is registered in Guernsey and managed from Gibraltar.

Patron looks set to do very well out of relatively short term investment in Ireland if speculation of a €150m price tag for all three is correct.

For every seller there is a buyer. Perhaps Malone is eyeing up County Mayo next?

Plunkett brings depth of experience to Providence

Providence Resources announced the appointment of industry veteran Pat Plunkett as chairman during the week. The former Tullow Oil chairman helped bring Tullow from a market capitalisation of around £274m in 2000 to £9bn before the oil price collapse of 2014.

Plunkett has been quite active since retiring from Tullow and is chairman of an oil and gas start-up called T5 Oil and Gas. He wanted to float it on the AIM in London in 2015 but industry conditions didn't allow it.

T5 then looked at backing into a few larger listed entities but that didn't work either, purely because of the financial impact of a weak oil price.

So what will he do at Providence?

The Tony O'Reilly jnr-led company has come through a significant and positive restructuring and has reduced its debt and losses. The issue is whether it can remain as a standalone entity in an environment of a prolonged weak oil price.

This is what Pat Plunkett had to say in the T5 annual report recently: "Throughout the year, your board continued to pursue our core strategy of building an exploration and production (E&P) company of scale with a geographic focus of Africa and the Middle East. The need for scale is now more evident than ever as the contraction in the industry has exposed the limitations of the small E&P company business model."

If Plunkett would include Providence in the small E&P category, then there may be some corporate activity coming down the track.

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