Camini Marajh Investigative Desk

executive: Lawrence Duprey

In a stunning deal that put the future of the entire Home Mortgage Bank (HMB) at risk, its former chairman and single largest shareholder, Andre Louis Monteil, guaranteed the bank’s balance sheet on a US$627 million transaction it was incapable of financing.

The veteran deal-maker and former group financial director of Lawrence Duprey’s financially stricken CL Financial conglomerate engineered a complex acquisition structure for CL’s majority ownership of Jamaican conglomerate Lascelles de Mercado that made good use of his connections and huge profits for himself and HMB, a statutory-owned corporation created by Parliament in 1985.

The Monteil-engineered deal which saw CL Financial pay a high premium for the Lascelles stock-more than double the listed value-also earned Clico Investment Bank (CIB), of which he was chairman, some very fat US million dollar fees.

But Monteil’s behind-the-scenes dealing and packaging of the Lascelles acquisition has raised concerns about the conduct of the Central Bank-supervised mortgage company and the payout of US millions of dollars in fees to related parties, a Sunday Express investigation has found.

Monteil, former chairman of the finance and audit committees on the board of rum and bitters giant Angostura Holdings Ltd and former party treasurer of the ruling People’s National Movement government, did not immediately answer questions about the Lascelles transaction or the rich payout of fees to related parties including former Clico director and consultant to CL Financial attorney Geoffrey Leid. Messages left on Monteil’s voicemail were unreturned.

But Sunday Express investigations found that there are several issues related to the legality of the 12-page engagement letter signed on December 14, 2007, between CL Financial and HMB and the accounting processes used to clinch the US$627 million deal that took Duprey one step closer to his dream of building a global drinks empire.

The December 2007 agreement, which gave the mortgage company the coveted role of financial sponsor and guarantor of the US$627 million transaction is set on plain paper, there is no HMB letterhead, the font and terminology change after the first three pages to what appears to be a standard boiler-plate financial agreement, and one of the four parties named in the agreement did not sign the document.

Also, there appears to be a significant discrepancy of US$100 million between the first two pages of the HMB agreement. On Page One of the agreement, there is an undertaking by financial sponsor HMB to ’negotiate and arrange financing to acquire the issued and outstanding preference and ordinary shares of Lascelles de Mercado pursuant to which the financial sponsor will act as financial sponsor in respect of short-, medium- and long-term financing facilities and/or loans to company parties (CL Financial and Angostura), in aggregate, amounting to US$727 million equivalent the total financing amount’.

Page Two of the agreement, under the heading ’Scope of Engagement’ 1(c): the document talks of providing an effective guarantee for two tranches of US$313.5 million at two separate dates. In a short telephone interview, Leid explained that the US$727 figure represented the full cost of the Lascelles acquisition. He had no explanation for the lucky coincidence of the drafters of the agreement getting the exact numbers right for the US$627 million price subsequently paid for the 86.87 per cent interest, right down to the last finite share, days before the formal offer was made to Lascelles shareholders.

No explanation was forthcoming either for what appears to be a cut-and-paste document, which contained early references to ’financial sponsor’ and later descriptions of a ’financial adviser’.

Leid, who received his own windfall of fees in the sum of US$1,079,615 or TT$6,801,578 on the sponsorship agreement defended the arrangement as a ’good deal’ for HMB and for the CL Financial Group. He fired back sharply at criticism that HMB did not have the capital to undertake a transaction of that size, countering that the use of HMB’s balance sheet-all of TT$200 million in equity-in fact made the deal happen. He said it was now a matter of public record that ’the transaction was consummated’.

He dismissed suggestions that HMB was set up as a conduit to pass fees through to close related parties or that the bank did not have the capacity to make good on its guarantee for US$627 million. ’I would say that they did sponsor the deal,’ he said.

An attorney by training, Leid said he was not the architect of the agreement but was retained by HBM to handle the M&A (mergers and acquisitions) part of the transaction. He confirmed receipt of the US million-dollar fees but declined to discuss the details of the transaction, saying only that the 1.25 per cent fee on the US$627 million deal paid out to HMB was in line with investment transaction fees.

He said prior to the questions raised by this reporter, he has not heard of any concerns or criticism made about HMB’s sponsorship agreement, which turned out to be one of the richest corporate paydays ever for the mortgage bank. HMB earned fees of US$4,478,661 million or TT$27,202,504, more than half of the bank’s the bank’s 2007 profit of TT$45.1 million.

And while Leid describes the transaction as ’standard’ and ’above board’, the lack of proper paper trails and supporting documents have led to a delay in the release of HMB’s 2008 financial statements.

The Sunday Express understands that auditors Ernst & Young has queried the sponsorship transaction with CL Financial and has expressed concern about the absence of formal arrangements with unnamed consultants who may have benefitted from the transaction or the quantum of fees paid out. Leid for instance, was paid by CIB and not HMB. And in another anomaly, he is named on HMB’s record as ’Lone Star Capital’, one of several privately owned Leid companies. The payment out of CIB, however, was made to another Leid company called Gelco Realty Consultants.

Adding to the complexity of the deal, there is no supporting paperwork at CIB on the US million-dollar payout to Leid’s company. Also, there is no explanation for the early payment of success fees paid out in April 2008, months before CL Financial closed on the transaction. The deal was closed in July 2008 at a total cost of US$676 million, which included, stamp duty costs, finance and legal fees, among other charges.

There are also huge conflict of interest issues with Monteil and Leid straddling several positions within the financial sponsorship structure. Leid countered, however, that it is only a conflict if the parties don’t know. And according to his account of events, all the parties knew the game plan.

Just what that game plan was or whether all the players were on board with the deal that was in play is now the subject of some dispute. Michael Carballo, who took over the mantle of group financial director from Monteil in April 2008, and one of the four partners to the December 14, 2007 agreement, told the Sunday Express that he had deep reservations about the structure of the deal. And while his name appears on the document, he said he did not sign off on the agreement. Carballo said he was opposed to HMB being paid a 1.25 per cent fee on the full transaction of US$627 million since in his view, the bank did nothing to earn those fees.

He said he had serious concerns as to whether CL Financial needed a sponsorship or guarantee from any other bank. The way he explains it, there appears to have been some duplicity of roles. He said Duprey’s former right hand man, Andre Monteil and himself used the financial clout of CL Financial’s name to arrange most of the financing on the first tranche. The mortgage bank, he said, brought only US$47.9 million to the table and provided security cover for US$22 million of the US$80.4 million put up by Republic Bank. The rest of the funds on the first tranche, he said, were pulled internally from within the CL Financial Group.

Monteil used HMB as a front to gain access to the additional US$22 million from Republic Bank to get round the hurdle of Republic Bank using its own shares. He took CIB-owned Republic Bank shares, pledged it to HMB and HMB in turn provided a US$22 million guarantee to CL Financial.

Carballo said he was not paid any fees on the HMB-related transaction and only learned about the payout of fees to HMB, CIB and others earlier this year when Central Bank called him in to query the transaction. Asked whether the fees should be repaid to CL Financial, he said only: ’I would decline comment at this time.’

The other signatories to the now controversial agreement is the then group chairman Lawrence Duprey, Monteil and Peter Johnson, the then chief executive officer of HMB signed on behalf of the mortgage bank.(Trinidad Express)