Monday, May 25, 2015

An expensive farce

At last we have the prospectus for the CLICO Investment Fund. We can now assess the offer being put to policyholders for their year 11-20 bonds based on facts. Because it has to meet SEC and Stock Exchange requirements, it has to meet certain standards which call for an unambiguous revelation of facts.

The prospectus starts with a most remarkable demand that it must not be distributed outside of Trinidad and Tobago. It also goes on to state that foreign resident policyholders do not qualify for the offer. Then quite remarkably it implies that this is because the offer would not be legal in other jurisdictions. The Santa Rosa team has held for a long time that many aspects of this rescue are illegal and contrary to accepted norms of business practice. Today we are joined by the government in recognising the rampant illegality of their own actions.

Furthermore, the practice of discriminating between groups of policyholders so callously practiced by the administration has now been extended to foreign resident investors. Citizens of other nations are being told openly by this administration that they cannot expect to be treated equally alongside local investors. Foreign resident investors are stuck with bonds that can be redeemed at market rates of about 30 per cent while local investors can exchange their bonds for units of far greater value. Why would any foreign investor now consider this country as a home for their funds?

One is led to the view that this whole arrangement is simply a means of keeping a large stake in Republic Bank in the hands of the government. The trustee, who is appointed by the Government can only be removed with the unanimous approval of unit holders. This will be impossible given that the government itself will inevitably end up owning some units.

There is no need for this expensive farce. If the government was concerned with the interests of policyholders, there was a simpler, less costly way to give them relief—via Republic Bank shares, which after all are owned by the company they have a contract with. They could easily have transferred RBL shares to policyholders on a one-to-one basis by value. That would have eliminated the various costs and expenses of their solution and would have made thousands of people into genuine shareholders, able to sell and generally trade in the stocks at their absolute discretion. Importantly for many policyholders, that would have given them shares that they could liquidate easily.

Having chosen the route of CIF, the government has incurred massive costs on policyholders' behalf. These costs will affect the price at which units will trade, to the detriment of policyholders. RBL shares get the benefit of 100 per cent of RBL dividends. CIF units will be burdened by expenses amounting to at least five per cent of its income. It is fanciful to suggest that CIF units will trade at the same price as RBL shares. Expect a loss of at least five per cent against the purchase price from day one of trading.

The prospectus itself tells us that only it must be relied upon in making a decision to accept the offer. Yet, in his press conference, the minister proceeded to make claims that were not included in the prospectus. For example, nowhere in the prospectus is there a date given for commencement of trading of the units on the Stock Exchange. Having such an example set by the minister, one should expect similar claims to be made openly by those salespersons (sorry, financial advisers as they like to be called) who expect to have yet another payday at policyholders' expense.

It is also interesting, and quite frankly disturbing, to note that the offer closes before the supposed start date for trading of the units. In other words, you are being forced to commit your funds before proof that the units will actually be accepted for trading, or having an opportunity to see the value at which they will trade. This is of even greater concern given the minister's failure to include the date of trading in the prospectus, the only document we can rely on, on his own advice.

So what are policyholders to do? There is one very good piece of advice in the prospectus i.e. read it carefully and take professional advice. We couldn't agree more. This is a first limited analysis from us. More detailed advice will be given over the next few days. We suggest you do not accept the offer for at least two weeks while we and others solicit more information, and perform more detailed analysis on your behalf.

We will also be preparing a document addressing the specific issues affecting foreign-based policyholders. If you are among their numbers, you should register that fact with us by e-mail so that all relevant documents and advice can be sent to you. Documents dealing with that issue will only be circulated to those who register an interest.

You can find the prospectus at the website of the Ministry of Finance at

• David Walker is a consultant to several CLICO policyholders. He can be

contacted at