Feb 2015 Financial News

US$258m left from CLF asset sales

Feb 19, 2015

Documents made available to the Business Guardian reveal that the sale of eight assets by the CL Financial group generated over $5.5 billion (US$872 million) between 2011 and 2013 in sale processes that generated sums in excess of the independent valuations in seven of the eight cases.

But of the US$872 million generated by the sale of assets in CL Financial, the group once chaired by Lawrence Duprey, over US$614 million was used to pay off debts of the companies that were sold, resulting in net proceeds of US$258 million that is being held in escrow accounts pending the full resolution of the repayment of CL Financial’s creditors, the documents disclosed.

The documents do not detail the sale of Methanol Holdings (Trinidad) Ltd, which was considered to be a Clico asset, and makes no mention of the sale of Republic Bank, Angostura or Clico's traditional insurance portfolio.

Under the Memorandum of Understanding (MoU), signed on January 30, 2009, CL Financial committed to the Government that it would dispose of certain named assets as well as other assetrs held by the group in order to repay to the Government funds that had been expended in support of the group’s financial entities—Clico, Clico Investment Bank (CIB), British American Trinidad (BAT) and CMMB.

Having become aware of the sale of Clico Energy in February 2009, shortly after the MoU was signed, and in view of the fact that CL Financial still had considerable control over assets that were not legally resident in the financial entities, the Government decided that it needed to exercise further control over the CL Financial assets than was afforded by the fact that the Central Bank had assumed full control of Clico, CIB and BAT under the provisions of section 44 of the Central Bank Act.

In June 2009, therefore, the Government executed a shareholders’ agreement with the majority shareholders of CL Financial, under which the Government was empowered to appoint four our of seven directors of CL Financial, thereby effectively gaining control of the asset divestment process.

Process

Under the shareholders’ agreement, a number of assets were sold in oaccordance with the following process:

Up to date valuations were sought and obtained from reputable valuers for each asset to be sold;

Under the management of the board of CL Financial, bids were openly invited from potential purchasers for each asset and each bid was evaluated;

The sales process for each asset was managed by independent advisors as follows:

The disposals of Primera and Lawrenceburg Distillers were managed by PwC;

The disposals of Lascelles deMercado and Burn Stewart Distillers were managed by UBS;

The disposals of Hine and Dugas (two European drinks companies) were managed by Winchester Capital; and

The disposals of Valpark Shopping Plaza and Atlantic Plaza were managed by Ernst & Young

Value derived

Valuations conducted in respect of each of the companies listed above amounted in total to US$560 million for the foreign companies and to TT$94.75 million for the two local companies—Valpark and Atlantic Plaza.

The actual proceeds from the sales of the foreign companies totaled US$841 million, which was US$280 million or 50 per cent higher than the valuations that the group had received.

In the case of the local companies, sales proceeds of TT$158.5 million amounted to TT$63.75 million or 67 per cent more than the original valuations.

Disposition of proceeds

Each of the companies sold, as listed above, had several liabilities that had to be treated with from the sales proceeds, resulting in net proceeds of US$258 million in the case of the foreign assets and TT$ million from the local companies.

These funds are being held in escrow accounts pending the full resolution of the repayment of debts to CL Financial’s creditors, including the Government.

The sales process

The asset sales began in earnest in 2011 with the sale of Primera Energy Company, and the most recent sale was of Dugas in November 2013.

The delay in starting these sales, which had been contemplated in 2009, was considered prudent in light of the fact that each of the companies carried significant debt burdens and that any attempt to pursue aggressively “fire sale” transactions in the weak markets of 2009 to 2011 would have yielded significantly counter-productive results.

The actual performance of the sales conducted shows the value of that restraint, since sales values significantly exceeded valuations and have provided surpluses for meeting CL Financial’s debt to the Government.

Assets still to be sold

The Central Bank, Government, Clico and CL Financial have adopted a collaborative approach to generate the best results from future asset sales including the potential sale of Methanol Holdings (International) Ltd, the methanol producer based in Oman.

In addition, discussions are currently underway to extend the approach as far as possible to the disposal of any other assets that may be required in order to facilitate the full repayment of the debt to Government and other creditors.

PRIMERA ENERGY

Primera Energy was involved in the exploration for and production of crude oil and natural gas.

Reason for sale

The sale of shares in the Primera group was undertaken in August 2011 because CL Financial was unable to meet its debt obligations related to the acquisition of its interests in Lascelles deMercado.

CL Financial had defaulted on its debt repayments on several occasions and the only relief granted was extensions of the principal repayment to the noteholders. The proceeds of the sale of the Primera group were targetted to meet the quarterly interest obligations to prevent the principal calls from being made.

Sales proceeds

In February 2011, PwC provided an independent valuation of the Primera group of US$33 million. PwC was selected to manage the sales process and the company was sold in August 2011. The sales proceeds of US$50.7 million comprised US$27.4 million and US$23.3 million notes

Use of proceeds

The US$27.4 million in cash was used for the repayment of part of the Lascelles deMercado notes held by CL Spirits Ltd. In a transaction with Clico for the repayment of amount on the Clico debenture, Clico became owner of the US$23.3 million notes as well as the CL Spirits Note in final settlement of the Clico debenture.

LAWRENCEBURG DISTILLERS

The company was a diversified producer pf alcoholic beverages and spirits such as shiskies, gin and neutral grain spirits for private label marketers. The company had distillation, bottling, warehousing and grain facilities in Lawrenburg and Rushville, Indiana

Reason for sale

On June 30, 2011, the distiller lost a major customer contract, which had accounted for 50 per cent of the company’s profits. Based on the market trends, the company was not able to replace this contract. This loss of business had a significant impact on the market value of the company.

The negative impact of the loss of the customer was reflected in the bids received.

Sale process

In February 2011, PwC was commissioned to conduct a valuation of the company. This valuation was US$33.2 million. PwC was used to manage the sale process. and the company was sold in December 2011 for US$31.5 million.

Use of proceeds

Loans to Home Construction Ltd to prevent default of HCL’s loans to FCB—US$7 million

Payment of interest on CL Financial’s loan from Republic Bank—US$4.8 million

Interest costs on Jamaican notes—US$5.4 million

Legal and professional fees—2.1 million

LASCELLES DEMERCADO

The CL Financial group acquired 86.97 per cent of the shareholding in this spirits company located in Jamaica. Lascelles was famous for its Appleton and Wray&Nephew brands.

Also included in this group were entities engaged in other business lines such as general insurance, investments and merchandise.

The shares were acquired at a cost of US$635 million. Part of the purchase price was funded by companies in the CL Financial group and part, US$342 million, was funded by noteholders.

Reason for sale

The purchase debt of US$342 million matured in January 2011 and CL Financial had to seek repayment extensions constantly. CL Financial had to continue making the interest payments and these rates, at 12 per cent per year, had increased due to default in repayment of the debt plus fees on several occasions when they became due.

CL Financial was faced with a total loss of credibility and the noteholders were not prepared to grant any further extensions. Further, there was the possibility that the shares of the company, which were held as collateral, could be sold by the noteholders to recover their US$342 million to Black Sand Inc at a significant undervaluation. Black Sand was a company formed by the previous Lascelles chief executive that had made a bid for Lascelles.

Sale process

UBS was appointed as financial advisor after a six-party bid process. The valuation was performed by Deloitte, which placed a value of US$452 million on the company, of which CL Financial’s 87 per cent was valued at US$393 million.

The company was sold for US$614 million, with CL Financial’s stake being worth US$534 million.

Use of proceeds

The proceeds were used as follows:

Repayment to noteholders (principal and interest)—US$422.43 million

Dividends owed to Clico and Angostura as part of sale agreement—US$5 million

Loans to HCL to prevent default on FCB loan—US$21 million BAICO advance—US$5 million

Payment of interest on CL Financial loan re purchase of LDM shares—US$4.8 million

BURN STEWART DISTILLERS

The company was a subsidiary of CL World Brands. It s a fully integrated whisky producer located in Scotland of which CL Financial owned 83 per cent.

Reason for sale

Equipment in the group was in need of upgrading in order to ensure the competitiveness of the companies. The parent company did not have the funds available for this capital injection and the most advisable way of addressing this matter was to sell the companies at a time when they were still able to attract competitive bids. Burn Stewart also had negative equity and was not in a position to pay dividends for the next five years.

Sale process

The board of CL Financial received expressions of interest from three companies: the Distell group, Campari and EPI. Distell, a group listed on the Johannesburg stock exchange with about 5,000 employees, already had a joint venture agreement with Burn Stewart for the distribution of some products in Distell’s markets, while Campari had purchased CL Financial’s interest in Lascelles.

A valuation of Burn Stewart done by PwC dated November 2011, placed an equity value of US$76 million using EBITDA multiples of US$11.27 (eight to 11 times EBITDA) with CL Financial’s 84 per cent worth US$64 million.

UBS acted as financial advisor with the CL Financial board committee negotiating the final sale price together with Allen & Overy (legal advisors).

Use of proceeds

The company was sold to Distell for US$190.9 million with the net proceeds of the sale being US$137 million, which is being held in a CL World Brands account in Scotland.

Professional and legal fees—US$2.5 million The 28.91 per cent proceeds to Angostura—US$52 million

THOMAS HINE

The company, located in France, is a leading manufacturer of cognac with a reputation as specialists in vintage cognacs

Reasons for sale

The long-term future for CL Financial’s continued ownership of Hine was challenged for the following reasons:

Capital investment: Hine management indicated that they needed more than 5 million euros to purchase additional vineyards to continue Hine’s growth

Declining EBITDA/European recession: Hine sales in the UK, Germany, and France fell in 2013

Monnet sales decline: Monnet, Hine’s second brand, experienced reduced sales in its main market, Finland, due to increased taxes levied by the Finnish government.

Inventory valuation: The value of cognac companies was bouyed in markets by extremely high prices for eaux-de-vie (EDV), which reached unprecedented inventory valuations. Some experts predicted a fall in EDV prices, which would have negatively impacted the value of Hine.

Sale process

A valuation of Hine conducted by PwC in November 2011 placed a value of US$33 million, using EBITDA multiples of US$2.39 (14.4 times).

WInchester Capital, a company based in the US and UK, which specialises in international mergers and acquisitions, was engaged by the board of CL Financial to be the financial advisor for the sale of Hine and other European assets.

Winchester targeted 123 potential buyers in 23 countries.

Use of proceeds

The company was sold for US$77.4 million or 52.4 million euros. The net proceeds were 51.2 million euros, which is being held in a CL World Brands account in the Bank of Scotland.

DUGAS

The company, which is based in France, is a distributor of whisky and rum.

Reasons for sale

Dugas was a drinks distributor for Burn Stewart Hine and Angostura products in Europe. Due to the sale of Burn Stewart and Hine and limited Angostura volume going forward, the best value for the company was a sale to a third party.

Sale process

Following extensive BuyerScope research and the conduct of a full and fair process. a total of 66 potential buyers were contacted by Winchester in a controlled process, resulting in the execution of ten conficentiality agreements and the receipt of two final offers.

Valuation was performed by PwC at 3 million euros (US$4 million) in a process managed by Winchester Capital.

Use of of proceeds

Sale proceeds of 7.5 million euros. After the repayment of shareholder loans of 3.5 million euros, the net proceeds are held in a CL World Brands account in Scotland.

VALPARK SHOPPING PLAZA

The company is a shopping mall located in Valsayn that is fully occupied with major retailers.

Reasons for sale

The CL Financial board considered it necessary to dispose of Valpark because of the critical financial position of Home Construction Ltd, its parent. HCL had defaulted on loan payments to its principal creditors, First Citizens and Unit Trust, amounting to TT274.6 million, as at December 31, 2012.

Further, loan payments of TT$87.6 million were due within the first quarter of 2013. Such defaults gave the creditors the right to place HCL in receivership as both creditors had fixed and floating charges over all the assets of HCL.

Sale process

The CL Financial board engaged the services of EY as consultants to manage the sale process based on valuations done independently by EY and Ray Pierre chartered valuation surveyors as at March 2011.

The valuation of the asset was TT$61.75 million.

Public advertisements of these sales were not recommended in order to avoid any negative reactions of a perceived fire sale and the potential negative reaction of the same on the company, other malls, lands and apartments at One Woodbrook Place.

EY sent packages to potential investors locally and international with 42 investors responding.

Use of proceeds

Valpark generated $99 million, which was used as follows:

UTC loan repayment—TT$59.3 million

FCB loan repayment—TT$31.4 million

Legal fees—$4.1 million

Severance payments—TT$2.7 million

NP settlement—TT$1.5 million

ATLANTIC PLAZA

A mall located in Point Lisas with mainly office tenants

Reasons for sale

Atlantic Plaza sale proceeds were needed to fund HCL’s debt obligations and the prospects for an increase in the value of the mall in the medium term were low.

Sale process

The board engaged the services of EY as consultants to manage the sale process, based on valuations done independently by EY and Raymond & Pierre as at March 31, 2011. The value of the asset was put at TT$33 million.

Public advertisements of this sale was not recommended.

Use of proceeds

The sale proceeds of TT$59.5 million were used as follows:

Payment of FCB loan—TT$43.3 million

Payment to FCB trustee services—TT$7.7 million

Severance—TT$3 million

Legal and professional fees—TT$4.5 million

Summary

Company	CLF ownership	Independent valuation	Sale price	Excess over valuation
Primera Energy	100%	US$33m	US$50.7m	US$17.7m
Lawrenceburg Distillers	100%	US$33.2m	US$31.5m	(US$1.7m)
Lascelles DeMercado	87%	US$393m	US$543m	US$141m
Burn Stewart	84%	US$64m	US$137m	US$73m
Thomas Hine	100%	US$33m	US$77.4m	US$44.4m
Societe Dugas	100%	US$4m	US$10.5m	US$6.5m
Valpark Shopping Plaza	100%	TT$61.75m	TT$99m	TT$37.25m
Atlantic Plaza	100%	TT$33m	TT$59.5m	$26.5m
TOTAL (TT$M)		3,708	5,583	1,875

 

Source:
Trinidad Guardian, BG4, BG5
Thursday February 19, 2015