Inside the world of business

IL&P dissenters take tough stance

THE DISSIDENT shareholders battling to avoid the wiping out of the value of their shareholdings in Irish Life & Permanent are a confident bunch.

Led by Piotr Skoczylas, managing director of Scotchstone Capital, they spent yesterday rounding up as many shareholders as possible to fight the Government’s effective nationalisation of the bank, via a direction order allowing it to pump €2.7 billion into it.

With Dublin law firm Hamilton Turner on board, Scotchstone and its supporters have formulated a strategy and it goes like this: mount a legal challenge against both the direction order and the constitutionality of the Credit Institutions (Stabilisation) Act 2010 and hope that this will scare a terrified Minister for Finance Michael Noonan into coughing up some kind of settlement.

Indeed, so enthused is Scotchstone with this idea that its letter to fellow shareholders in the bank cautions that if they are not named as claimants on the case, they stand to lose out.

“If there is a settlement, in all likelihood only the named claimants will be able to benefit from the settlement. Others will likely not,” Skoczylas wrote in an e-mail yesterday. “The proceeds of any settlement will be divided on a pro-rata basis to the shareholdings.”

Of course, there is a possible flipside: “Any possible adverse costs awarded against the claimants would also be divided on a pro-rata basis to shareholdings.”

If you’re in, you’re all the way in.

“The good news is that we have a strong case,” Skoczylas advised earlier in the week. “Some have advised that the case against the Minister is likely to succeed.”

Tough talk, but it is worth remembering that the Government is not nationalising IL&P on a whim – in its actions it has the backing of the IMF, the EU and the European Central Bank.

Before the recapitalisation took place, Scotchstone was keen to characterise Noonan’s move as “not in the interest of the Irish taxpayers”. One wonders how its latest campaign could be either.

When will STT make  a call on Eircom?

THE THREE-WAY game of chicken between Eircom, its bond holders and Singapore Technologies Telemedia (STT) appears to be coming to a climax.

STT, which took control of Eircom last year, has until the end of next month to decide whether to put some additional capital into the company to allow it to avoid a breach of the covenants on its €3.75 billion debt.

If STT allows Eircom to default, then Eircom will begin talks with its committee of senior lenders about writing off some €1 billion worth of debt, according to reports yesterday.

It is hard to see a write-off of that size happening without the lenders assuming control of the company, squeezing out STT and the employee share trust.

The temptation for STT must be to just trickle a little more money into Eircom to avoid a default and keep its options open.

This is attractive because the longer STT can put off having to make a decision, the greater the visibility it has over the company’s prospects, which in turn are closely entwined with the performance of the economy.

The recent spate of relatively good news about the economy may or may not have been enough to convince the Singaporeans to jump, but it is starting to look as though the company’s faltering performance may force their hand in any case.

Eircom warned yesterday that earnings before interest, tax, depreciation and amortisation (ebitda) will be materially lower this year.

Given that the group’s debt covenants are based on the senior debt-to-ebitda ratio, the situation looks as though things could quickly unravel and STT could loose control of the situation – if it has not done so already.

And the solution? According to Eircom, it is “investment to capitalise on future opportunities for growth”.

Are you paying attention STT or do you want us to shout louder?

You can get the latest news each business day at irishtimes.com/business or by following us on Twitter at twitter.com/IrishTimesBiz. We also have a Facebook page at facebook.com/IrishTimesBiz where you can read the latest business headlines, blog posts and reader polls.