Cantillon

Inside the world of business

Downgrading a positive for Cowen's State of denial

ONLY A Government that has made denial something of an art form could pretend that a downgrading of the sovereign debt rating is a positive endorsement of policy.

But that is exactly what the Taoiseach did yesterday when he exhorted the public to find the “real message” in Moody’s view that we are less likely to repay our debt than the agency had previously thought.

That is the ugly truth of a downgrade. The Taoiseach’s call for us to focus instead on the fact that Moody’s doesn’t think our creditworthiness will get any worse seems a little facile. To then make the leap to representing the downgrade as an endorsement of the Government’s economic policies is at best misleading.

Much was made in this regard of the fact that yields on Irish bonds hardly moved yesterday.

Likewise, the decision of the National Treasury Management Agency to proceed with a bond auction today.

This can just as easily be explained by the market having already factored in another downgrade. The ongoing deterioration in the Irish debt to GDP ratio – as the true cost of the banking rescue becomes apparent – is there for all to see.

Yesterday, good news, as Mr Cowen well knows, would have been the avoidance of a downgrade and even a change in the outlook to stable. Good news in the future – as Mr Cowen equally well knows – will be a change in the outlook to positive.

That will not be achieved by rhetoric but primarily by delivering a budget that instills confidence.

Syndicate sorrows

The read across from the Seán FitzPatrick bankruptcy for the once moneyed professional classes is truly frightening. Particularly so in the case of syndicated property deals which were the investment of choice for lawyers, doctors and small businessmen.

Quinlan Private – now known as Avestus – was among the leading promoters of these schemes and Mr FitzPatrick was in four of its more high-profile syndicates: Jurys Inns, the Maximilianhof shopping centre in Munich; the Four Seasons hotel in Prague; and Bank of Ireland’s soon-to-be-vacated head office on Baggot Street.

Mr Fitzpatrick looks set to double his money in Prague and maybe wash his face in Jurys. But his paper gains there are pretty much cancelled out by the losses on the Baggot Street and Munich transactions.

The former Anglo chairman was also an investor in syndicates organised by CMC Capital in Cork, Warren Private Clients and others. They are nothing to write home about either.

Mr Fitzpatrick may represent the extreme, but the prudent assumption is that there are literally hundreds if not thousands of people facing similar problems, given the proliferation of such schemes and the “private capital” boutiques which promoted them.

In time these losses will have to be faced up to and bankruptcy may be the only option for some. Another reason – if one was needed – for the speedy reform of the bankruptcy laws.

Bord na Móna’s mixed bag

Bord na Móna looks like an odd gathering of businesses. The State company is in everything from power generation to developing biological systems for eliminating odours from waste water treatment plants.

It all sounds a far cry from the purpose for which it was founded 75 years ago, harvesting and exploiting peat from the bogs that patchwork the midlands and west. Thanks to the EU, the company has to wind down the exploitation of peat bogs.

That means Bord na Móna has to find alternatives in order to stay in business.

It has been working hard at this and is developing businesses in areas such as environmental services, recycling and recovery and waste-to-energy.

Its figures show that €315 million of its €384 million turnover in the 12 months to the end of March came from peat-fired power generation, fuel sales and horticulture, all of which are linked to its original core business.

This is destined to change. Its peat-fired power plants will switch over time to biomass; it is redeveloping its fuels business; and it is working on finding alternatives to peat for its fertilizers.

It is following fellow State companies, the ESB and Bord Gáis, into renewable energy and plans to develop the State’s biggest wind farm in Co Mayo.

Down the road, it’s likely that it will be responsible for supplying water from the river Shannon to the increasingly populous east and midlands of the State.

This is all part of the transformation that chief executive Gabriel D’Arcy signalled when he took over at the helm in 2008.

The result is a diverse group of developing businesses housed under one umbrella. Nothing unusual in that, and strategically it could be a good thing.

But it’s going to prove a bit of a puzzle to the Colm McCarthy-led group that the Government has appointed to run the rule over State companies to see if any can be sold to raise cash.

The group has yet to approach Bord na Móna, but when it does, it will be interesting to see its conclusions.

TODAY

The National Treasury Management Agency will auction up to €1.5 billion in six and 10-year Government bonds as part of its regular calendar of monthly auctions to raise funds to address the national debt.

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