Ireland’s minister of finance Michael Noonan today confirmed an accelerated timeline for the disposal of NAMA’s remaining loan book with an estimated revised sales target of around €9bn over the next two and a half years.
Noonan has accepted the Board of NAMA’s recommendation to speed up the wind-up of Ireland’s bad bank, which would leave just €6bn of senior secured bonds by the end of 2016 which equates to redeeming 80% of the senior secured bonds which financed the purchase of the loans.
While NAMA is not confirming the direct sales target, it is extrapolated from the redemption target of the outstanding senior secured bonds.
NAMA’s most recent remaining loan balance was €19.6bn, dated to the end of 2013, since which time NAMA has sold the £4.5bn Project Eagle to Cerberus for £1.2bn, as well as projects Tower, Drive, Redwood and Holly as well as the sale of Green Park.
According to the new timeline, NAMA would entirely be wound-up by the end of 2018.
Also notable in today’s formal review of NAMA was confirmation of the bad bank’s intended evolution into a development agency with a mandate to release grade A office space within the Dublin Docklands and the city’s central business district as well as delivering of residential housing units “in areas of most need”.
The motives for the accelerated timeline are both market-led and political with the current administration keen to align itself to the success of the likely net positive final years of NAMA and associate itself with returning taxpayers’ money after Ireland’s banking market collapse of 2008.
Another underlying motivation is thought to be Noonan’s desire to re-float Allied Irish Bank, possibly before the next General Election. Redemption of the senior bonds and subordinated debt used to finance the purchase of AIB loans at par would significantly strengthen the bank’s balance sheet and facilitate a re-floatation.
NAMA stressed that its accelerated wind-up is more different than similar to the IBRC liquidation with the bad bank disposing of assets and loans over an initial two-and-a-half years, rather than the 12-month period in which IBRC was sold off.
The balance to be struck is between absolute value and time-value of money, with the government seeking to capture as much of the political upside as possible before the next General Election.
In the review, it stated: “NAMA has made significant progress in achieving its overall objectives and so should continue. Based on NAMA’s performance to date and its financial projections in light of the strength of current investor interest in Ireland, NAMA is well positioned to achieve its objectives.
“Assuming a slow and steady recovery of the Irish property market absent significant macroeconomic shocks, NAMA will likely be in a position to repay both its senior debt and its subordinated debt at par prior to 2020 as originally expected.
“It is possible that NAMA could also provide a return to its equity holders, both the taxpayer and the other equity investors, if the market recovery exceeds current expectations.”
NAMA is owned through a holding company, National Asset Management Agency Investment Ltd (NAMAIL), 51% of which is owned – in equal 17% splits – by partners of Walbrook Capital, a UK-based investment firm, New Ireland Assurance Co. plc and Percy Nominees Ltd, a nominee of Prescient Investment Managers which was formerly called AIB Investment Managers.
The remaining 49% of the shares are owned by NAMA.
Part of the upside which NAMA shareholders are expected to benefit from is the clawback of a proportion of impairment provisions against loans which have risen in value. This is because the accounting rules which NAMA abides by requires mark-downs but cannot accept upward valuation provisions.
Minister Noonan stated in a prepared statement: “While NAMA was created out of necessity during an economic and banking crisis I firmly believe it can play a major role in Ireland’s economic recovery.
“By year end NAMA will have redeemed 50% of its senior debt, two years ahead of schedule and the new redemption target of 80% by 2016 strikes the right balance between reducing debt and maximising the return to the taxpayer. It should not be forgotten that many NAMA sales transactions generate building and construction activity.
“The Dublin Docklands area presents a unique opportunity for NAMA and the Irish taxpayer. It is rare that such large swathes of prime waterfront land in a modern city such as Dublin has remained undeveloped.
“It is even rarer that the ownership of such land rests in a State organisation providing the opportunity for truly joined up planning, development and construction of such a large and important area. NAMA now has the opportunity to bring this area to life and create a Dublin Docklands that will rival the likes of London’s Canary Warf, Boston’s Seaport and Singapore’s Marina Bay.”
NAMA Chairman, Mr. Frank Daly, stated: “Following completion of the Section 227 review, the NAMA Board welcomes the review’s conclusion that NAMA has made significant progress in achieving its overall objectives and that its continuation is therefore necessary.
“The Board is very confident that NAMA will redeem its senior and subordinated debt sooner than the 2020 date that it had originally envisaged. We also believe that NAMA will ultimately return a surplus to the Exchequer.
“If achieved, this would be a very creditable outcome bearing in mind the very difficult market conditions faced by NAMA in its first three years of operation, not least the fall of 25% – 30% in property prices in the Irish market between the start of 2010 and mid-2013.
The Board will now press ahead with plans to accelerate asset and loan sales so as to fulfil its ambitious end-2016 senior debt redemption target. It will also treat as a major priority the delivery of key Grade A office space within the Dublin Docklands SDZ and Dublin’s Central Business District and the delivery of residential housing units in areas of most need.”
NAMA chief executive, Brendan McDonagh, stated: “The scale of what still needs to be done is very substantial and, in order to achieve best value for taxpayers, it is vital that NAMA is in a position to retain staff with a detailed knowledge of the loans and underlying assets that are to be offered for sale and with the expertise to ensure that sales processes are managed professionally and effectively.”
Kevin Nowlan, CEO of Hibernia REIT said: “NAMA’s plans to offer quality loan and property portfolios of a scale and scope of interest to long-term institutional investors is to be welcomed, and will provide opportunities for REITs like Hibernia to selectively grow their investment portfolios over the next number of years.
Accessing properties through loan acquisitions is an approach we have already successfully used in four of our transactions to date, and we will be active participants in future sale processes run by NAMA and other banks as they continue their aggressive deleveraging strategy.”