Government has paid for the 40 million Republic Bank shares that were transferred out of Clico's statutory fund to establish the Clico Investment Fund by issuing a bond in the amount of $4.397 billion, the Ministry of Finance confirmed on Tuesday night.
The issue of the transfer of exactly 40,072,299 Republic Bank shares, which are worth about $4.3 billion, out of the Clico statutory fund was raised by the United Policyholder's Group in its judicial review of the Government's decision not to pay back Clico and British American investors all of the money they invested in the financially troubled insurance companies that were subsidiaries of the failed CL Financial conglomerate.
Lawyers for the United Policyholders Group, including Ramesh Lawrence Maharaj, argued that the transfer of assets out of the statutory fund of an insurance company contravened the Insurance Act. In their lawsuit, the policyholders challenged the decision of the Cabinet to refuse to honour the promise Government made in 2009 that EFPA policyholders would be fully compensated for their policies.
They claim the decision was disproportionate, illegal and irrational. The policyholders' legal team comprises British Queen's Counsel, Peter Knox, Ramesh Lawrence Maharaj, SC, together with Vijaya Maharaj, Nyala Badal and consulting attorney, Robert Strang. Russel Martineau, SC, Queen's Counsel Alan Newman and attorney Kelvin Ramkisson are representing the State.
In his affidavit of November 19, permanent secretary in the Ministry of Finance, Maurice Suite, stated: Insofar as the revised plan involves removal of Republic Bank shares from the statutory fund, those shares were exchanged at fair market value for Government securities being given to Clico and placed in the statutory fund with the approval of the Central Bank."
In response to a question from the Guardian asking whether the paragraph in the affidavit meant that the Government had transferred bonds valued at $4.3 billion into Clico's statutory fund, Suite stated: "It means Government paid Clico for the Republic Bank shares from the statutory fund a price which was agreed between Clico, Central Bank and GORTT, taking into account the independent valuation conducted on these Republic Bank shares.
These bonds replaced the RBL shares in the statutory fund."
Asked what fiscal implication the transfer of bonds valued in excess of $4 billion had and if the sum was included in the $19.7 billion that Finance Minister Larry Howai said was the cost of the Clico bailout as at October 1, Suite said: "The 40,072,299 RBL shares purchased from Clico were paid for through the issuance of a bond by GORTT in the amount of $4.397 billion.
A second bond was issued by GORTT to fund the difference between the capitalisation requirement of the Clico Investment Fund, that is $5.1 billion and the purchase price of the RBL shares, that is $4.397 billion. Accordingly, the value of the second bond issued was $703 million. Therefore the total bonds issued amounted to $5.1 billion."
Suite went on to add that any of the 11 to 20 year bonds exchanged for units in the Fund would be effectively cancelled. The Clico matter was heard over three days last week and judgment was reserved by Justice Joan Charles.