BACKGROUND:A group employing 5,500 in Ireland in sectors as diverse as cement and chemicals overreached itself in financial services, write BARRY O'HALLORANand CAROLINE MADDEN
IT’S NOT so long since the media was breathlessly painting Seán Quinn as a brass-from-muck self-made man who turned a single lorry and an out-of-the-way quarry into a €4.7 billion fortune.
And to be fair, the substance of the story is true. He grew up in Derrylin in Fermanagh, and left school at 14 to work on the family farm. He soon discovered that its real value lay beneath the soil, and began quarrying for sand and gravel, which he sold from a lorry he drove around roads in dangerous Border territory during the Troubles in the 1970s.
This modest start provided the foundation for a group that generates about €400 million in cash every year and which spans cement, glass, plastics, radiators, energy, hospitality, chemicals, property and financial services.
However, it looks as if it was his foray into financial services which could now prove his undoing. Yesterday, the High Court appointed Paul McCann and Michael McAteer of Grant Thornton as administrators to his general and health insurance businesses.
Guarantees given by subsidiaries of Quinn Insurance against group borrowings cut the company’s assets by €448 million, and meant the company could not conform with regulations governing insurance companies’ solvency requirements.
Yesterday’s ruling was not the first time that Quinn Insurance has run foul of the authorities. It was fined €3.25 million for lending money to the Quinn family, its shareholders, to invest in Anglo Irish Bank in 2008. Quinn himself was forced to resign as chairman of the insurance company at that time.
The clandestine dealings between Seán Quinn and the now nationalised bank created a tangled web in which both parties are still trapped.
In the lead-up to the summer of 2008, Quinn and his family secretly accumulated a 25 per cent stake in Anglo, just as the bank was faltering. This holding was built up using contracts for difference (CFDs) – financial products which allow investors to speculate on the price movement of a share without having to physically own the underlying asset. Quinn’s subsequent decision to convert this 25 per cent indirect position into a direct shareholding of just 15 per cent led to the infamous “Golden Circle” transaction, known within Anglo as the Maple transaction.
The unwinding of his stake would have left an overhang of 10 per cent of the bank’s shares which, if left to the open market, would have sent its share price plummeting. In an effort to avoid this scenario, 10 long-standing Anglo clients were loaned money by the bank to buy up the 10 per cent holding. It later transpired that the security against these loans was, for the most part, limited to the shares purchased. The taxpayer looks set to carry a loss to the tune of €300 million from this debacle alone.
In January 2009, Quinn admitted that his family had sustained losses of at least €1 billion on its Anglo investment, although it is believed this could be higher. “I suppose in hindsight we were too greedy by . . . being so much involved in stocks and shares,” he conceded at the time.
The Quinn group has already written off up to €888 million over 2007 and 2008 arising from the disastrous Anglo investment.
The Quinn/Anglo entanglement is being investigated by the Financial Regulator and the Office of Corporate Enforcement.
The Quinn Group currently has loans of more than €2.5 billion with Anglo, making it the bank’s largest borrower.
Earlier in his career, Quinn also courted controversy. Ten years ago, the High Court struck out his challenge to Meath County Council’s decision to grant planning permission to Lagan Cement, a competitor, to build a cement plant at Killaskillen, after it emerged that Quinn Group had given €38,000 to an organisation of local residents campaigning against the decision.
That is not to say that the group is a habitual offender. Quinn himself does not like publicity and, for the most part, he and his various companies have gotten on with their business with the minimum of fuss.
And they have a lot of businesses to be getting on with. The headquarters in Derrylin is surrounded by industrial plants largely focused on manufacturing cement and other building materials including tiles, insulation and concrete, and there are also quarrying operations.
Over the last decade, Quinn bought part of Ardagh Glass, which produces bottles and jars in Ireland, Britain and Europe.
The group followed that with a swoop for radiator and plastics group Barlo, which had been the subject of a long-drawn out management takeover bid. It also developed a chemicals division based in Leipzig in Germany.
In much the same way as Quinn appeared to strike suddenly for Barlo, its €150 million bid in 2007 for British health insurer Bupa’s Irish business seemed to come out of the blue. The move saw it acquire 450,000 customers, and led to a High Court battle which forced a rethink of health insurance policy.
Along the way, Quinn bought property with the same enthusiasm, acquiring the Belfry Golf Club and hotel in Britain, Hiltons in Prague and Sofia, other hotels and bars, and commercial properties in Kiev, Moscow and eastern Europe.
The hotel for which the group is best known is the Slieve Russell in Cavan, which Quinn built from the ground up in a location that pretty much everybody said would never work. It was so successful that its mix of hotel, golf club, spa and other leisure facilities became a template for many others.
Insofar as he’s ever made any comment on his strategy, Quinn has simply said that the group invests for long-term value. Whether yesterday’s events will ultimately lead to the unwinding of all or part of that value remains to be seen. And nobody will be paying closer attention than the group’s 5,500 Irish workers.