Thursday 26 April 2018

Govt spins with house finance plan

Nama chiefs Brendan McDonagh and Frank Daly may yet have a role to play in the Government’s proposed housing finance agency. Photo: Gareth Chaney
Nama chiefs Brendan McDonagh and Frank Daly may yet have a role to play in the Government’s proposed housing finance agency. Photo: Gareth Chaney

Ronald Quinlan - Commercial Property Editor

They're going to call it Home Building Finance Ireland, or "HBFI for short" as Finance Minister Paschal Donohoe put it when announcing what he described as a "significant intervention" aimed at addressing the need of developers to access cheaper funds to build new homes.

The minister's use in his Budget speech of the rather grand-sounding acronym, coupled with his pledge to pull €750m from the Ireland Strategic Investment Fund (ISIF) to support the proposed agency's mission, was promising. Indeed, for a moment it almost sounded as if the Government was about to deliver on a 'plan' that Taoiseach Leo Varadkar has been spinning through the pages of a largely-compliant media since last month's Fine Gael 'think in'.

According to the Taoiseach, the Government has been working "for some time" on proposals to 'repurpose' Nama to help address the housing crisis. His most recent version of how that might be done came in an interview with The Irish Times on September 18 last when he said: "The role we envisage for Nama is as an agency that could provide development finance."

So what did finance minister Paschal Donohoe actually announce in the Budget? Not a lot as it turns out. For even as he stated his intention for HBFI to "get up and running quickly", he gave no timeline for when the new agency might be operational. There are suggestions being bandied out already that it could well be a year before HBFI is open for business. Fuelling that speculation is the minister's own Budget speech admission that the enabling legislation for the new agency is still being worked on by his officials.

So what of the Government's supposed plan for Nama to be repurposed as the finance provider that HBFI is now poised to become? Well, according to Donohoe, the establishment of HBFI "will have no impact on the ongoing wind-down of Nama". There's a good reason for that, and the finance minister hinted at in the same sentence when he noted that HBFI would be "designed to avoid distortion of the market and to comply with State aid rules".

The Government is acutely aware of the State aid issue, and has been since as far back as December 2015, when five of the country's biggest developers - Michael O'Flynn, Paddy McKillen, David Daly, Marlet ceo Patrick Crean and MKN Group director Brian McKeown - lodged a complaint with the European Commission, alleging that Nama has flouted the EU's State aid rules.

In their submission to the Commission's Competition Directorate, the developers contend that Nama has not only gone beyond the original remit for which it had been given the Commission's approval, but is now giving Nama-supported developers a significant financial advantage over non-Nama developers through the provision of loans at preferential rates.

The proposed establishment of HBFI with its promise of €750m in debt funding for developers on "market terms" is nothing if not an acknowledgement by the State that non-Nama supported developers have been operating at a disadvantage to those still being funded by Nama.

While finance minister Paschal Donohoe said in his Budget speech that HBFI "will draw on the extensive skill and expertise in residential funding" that he says "currently resides in Nama", it remains unclear how this might work in practice given his subsequent insistence in media interviews that the new agency will operate independently of Nama.

There certainly appears to be confusion in Government and in Nama as to the latter's potential involvement in HBFI. This despite the claim by the Taoiseach that the Government has been working "for some time" on this plan.

But however ill-prepared the politicians are, Nama chiefs Brendan McDonagh and Frank Daly seem determined to have a not-insignificant involvement in the affairs of the new housing finance agency. Last Wednesday, both men gave interviews to The Irish Times and the Irish Independent, in which they highlighted Nama's prospective future role with HBFI.

While Messrs McDonagh and Daly told both newspapers that they expect Nama to sign a service level agreement to provide outsourced services to the new agency, a number of additional comments made to the Irish Independent suggest that they anticipate, or may be looking for a more 'hands-on' role in HBFI. This despite the fact that the finance minister has said that HBFI will operate independently of Nama.

Asked if developers who had a poor relationship with Nama in the past would be able to access loans from HBFI, Nama ceo Brendan McDonagh insisted that they would, saying there will be "no restrictions on borrowers if they have a business case and a viable proposition. We've all been through a lot".

Although McDonagh is merely making sense when he says that prospective HBFI borrowers won't be restricted if they have viable propositions, his reference to everyone having "been through a lot" suggests that he himself may expect to be dealing in the future with developers who previously fell out with Nama.

The Irish Independent article further noted that the creation of HBFI would make it easier for Nama to retain staff, with McDonagh saying: "People who are good will stay on for a few more years."

Frank Daly, for his part, added: "The Government has recognised that the skill set here [in Nama] is an asset to the State and put it to use."

Could it be that McDonagh and Daly count their own experience with Nama as providing them with the skill set that the HBFI will require?

The future relationship or otherwise between Nama and HBFI may well have been provided with some clarity last Friday with Nama's announcement that it expects to make the final €500m payment from the original €30.2bn of senior bonds it used to acquire some €71.2bn of developers' loans from the banks.

The payment will see the agency repay its senior debt three years ahead of its original deadline. With that milestone reached, the agency's disposal of its remaining €4bn in loans and assets and the resolution of ongoing litigation will see its operations continue, albeit it at a much-reduced level, until 2020.

The timing of Nama's announcement that it had achieved its "core objective" wasn't lost on Paschal Donohoe as he seeks to establish the HBFI, and deliver the "significant intervention" to the housing market promised in his Budget speech.

Welcoming the news, he said: "Budget 2018 outlined plans to further utilise the skills and experience that have been built up in Nama down through the years, and I look forward to those involved in the agency continuing to make a contribution to our continued progress in the period ahead".

Sunday Independent

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