The largest deal in the Irish market since the onset of the credit crunch – involving nationalised Anglo Irish Bank – is beset by controversy, writes GRETCHEN FRIEMANN

DEPUTY FINE Gael leader, Richard Bruton, is expected to question the Minister for Finance, Brian Lenihan, today about plans to sell off up to €1 billion worth of investment properties owned by the nationalised Anglo Irish Bank to Green Property, a Dublin-based property firm.

Bruton will seek assurances that the transaction, which is the largest in the Irish property market since the onslaught of the credit crunch, has been handled in an “open” and “competitive” manner. He said it would be “very disturbing” if there was “any hint of a sweetheart deal”.

He stressed that, as Anglo Irish Bank was “wholly owned by the taxpayer, it was effectively an arm of public policy” and, as such, its business decisions have the power to impact upon Ireland’s international reputation. He added that the state-owned institution must be seen to be “fair” and “above board” in all its negotiations.

Both Anglo Irish Bank and Green, a company controlled by the British entrepreneur Stephen Vernon, have refused to discuss the terms of the deal, citing commercial confidentiality, but it is understood that at least eight income-producing properties, located in Ireland, the UK and Germany, will be sold.

News of the planned transaction emerged last month, sparking widespread criticism in the market at Anglo’s failure to conduct a bidding war for the real estate. It is understood Green was the only party Anglo entered into serious negotiations with, despite expressions of interest from a number of British institutions for the UK properties. Industry sources said at least two developers “wanted to have a shot” at buying the entire portfolio.

One agent described the deal as a “financial fudge”, pointing out that in pursuing an off-market transaction, Anglo was shifting assets off its balance sheet without revealing the scale of the write-down on them. There are also accusations within the industry of a sweetheart deal because Green, which also owns the Blanchardstown shopping centre, is a stakeholder in one of the properties slated for sale.

Under the terms of the deal, Green will acquire all of the properties within Anglo’s €640 million Select Geared Property Fund, except a €25 million shareholding in the Arnotts department store group.

The fund was launched in 2007, at the height of the economic boom, and includes the Gaiety Centre shopping development on South King Street, two prime London office blocks, the Metquarter shopping centre in Liverpool and a redevelopment property in Surrey, which is 50 per cent owned by Green.

It is understood Anglo’s 18 per cent stake in Arnotts Holdings Limited, the holding company for the retail and property assets of the Arnotts group, was excluded at the outset from any sale negotiations.

Well-placed sources said Green showed “zero interest” in purchasing the stake as it is a development project and does not square with the firm’s strategy to acquire and manage investment properties.

In addition to the sale of the five fund properties, Green will also take ownership of a hotel in Cologne, a shopping centre near Dusseldorf and an office block on Fenchurch Street in London’s Square Mile.

All of the properties were intended for syndication to Anglo Irish Bank’s private clients. But when the market collapsed the unsold equity remained on Anglo Irish Assurance Company’s (AIAC) balance sheet.

The pensions and investment wing of Anglo had hoped to raise €255 million from its private investors for the Select Geared Property Fund. But industry sources estimate the organisation missed its target by more than 50 per cent.

It is understood the three additional properties included in the deal were pre-funded by Anglo and that its subsidiary AIAC holds all of the equity for these assets on its balance sheet.

According to one well-placed source, the Green transaction could involve more than eight properties and he said the deal means AIAC will be left with the unsold equity for just two development properties: the Arnotts Group investment and the Opera shopping centre in Limerick’s city centre.

Anglo and Green are thought to have agreed a “staple financing” model to facilitate the transfer of ownership of the €1 billion portfolio of investment properties. Known in the market as “vendor-lending”, this type of financing usually means the seller provides a debt-package to the buyer. In the wake of the credit crunch, many large-scale property transactions have been structured around this model.

Yet it is unclear how much equity Green will stump up for the real estate or on what basis it will acquire the portfolio’s outstanding loans.

According to a prospectus for the Select Geared Property Fund, which has been seen by The Irish Times, non-recourse bank borrowings account for €339 million of the portfolio’s value.

A source close to the negotiations said it would be “fair to assume” the Green transaction would not involve any change to the original loan structures on the properties.

As one industry expert pointed out, if the loans are non-recourse, Green can “simply hand back the assets if, after a certain period of time, their value remains below the outstanding debt value”.

Green is one of the country’s few remaining cash-rich companies.

A source close to the Anglo transaction confirmed the deal had not yet closed but was “hurtling towards a conclusion”.

Earlier this year Green acquired a portfolio of British properties from AIB after the bank seized them back from Greek businessman Achilleas Kallakis, who is under investigation by the UK authorities for alleged fraud.