Inside The World of Business
McInerney's Spanish venture may have moment in the sun
McINERNEY HOLDINGS’ Spanish business slipped under the radar earlier in the decade as the housebuilder focused its efforts on booming markets in Ireland and then Britain, where it began expanding through acquisitions.
But now it looks like Spain – a mixed bag of development land, holiday homes for sale and a timeshare club – is set to grab some limelight as the ailing company seeks some way of raising cash and striking a new deal with the banks, to which it owes €242 million. Group managing director Barry O’Connor has signalled his interest in buying the Spanish operations as part of a restructuring plan being drawn up by investment bank Goldman Sachs, which McInerney drafted in to help look at its options.
Those options are limited to doing a deal with the banks. McInerney has been in breach of the terms of its loans since last year. When it released results last week, it signalled it is nearing a settlement. But it added that it is relying on lenders’ support – without this, it would presumably cease trading.
Assuming McInerney wants to save the rest of the group, offloading Spain seems like a good idea. It’s a leisure business, far removed from McInerney’s core activity. It has been losing money, although it showed signs of turning around last year, when losses were €155,000, as opposed to €5.1 million in 2008.
All this could add up to a bargain for O’Connor, or whoever buys it. The net assets of the Spanish operation come to €34 million, according to the group’s balance sheet. It will be interesting to see what will be on the table when – and if – an offer is made.
Putting faith in Dalkey
It would appear that Providence Resources simply cannot lose when it comes to the exploration acreage it has acquired in Dublin Bay which, rather unsettlingly for the burghers of the eponymous Dublin suburb, is known as the Dalkey Island Prospect.
This week we had Tony O’Reilly jnr, the Providence chief executive telling us that Dalkey Island is some sort of geological first cousin of Morecambe Bay off Cumbria and thus may hold the same rich reserves of oil and gas.
He also pointed out the geological similarities between Dalkey Island and Lough Larne in the North. This holds the prosect of discovering vast empty caverns which could be used to store natural gas or, even better, some 270 million tonnes of carbon, the new black gold.
It’s all a bit reminiscent of another time and another Tony O’Reilly who expounded the prospects of another small Irish exploration company – Atlantic Resources – which was looking for oil off the south coast in the 1970s and 1980s. That particular horse never came in for the small punters who jumped in, but it lives on in a vastly diluted fashion as Providence.
Don’t bank on more credit
Increases in mortgage interest rates and the drying up of credit are two painful facets of the economic malaise for householders and small businesses. Yet, listening to the rhetoric of the Central Bank, it’s difficult not to detect a “what will be, will be” laissez-faire philosophy that doesn’t bode well for anyone seeking Government intervention – anyone who has not yet managed to incorporate themselves as a bank.
Take the Central Bank’s thoughts on credit supply. Sure, “banks that feel they have no margin for error in terms of extending loans may overrestrict credit, damaging growth in the real economy”, it noted yesterday. On the other hand, it also stressed that the banks’ collective decision to cut off the supply of loans to households and firms of deteriorating creditworthiness was an entirely rational one.
This blackening of all of our credit records was a supply-side phenomenon that “naturally occurs in a downturn”, it said, omitting to mention that the cause of the downturn was the actions of the banks themselves.
And while the banks are behaving perfectly “naturally” in relation to their policies towards small and medium enterprises (SMEs), so too are interest rate hikes “a normal part of the commercial process”. Meanwhile, the one flicker to date of Government effort to alleviate the mess it created – a 12-month moratorium on legal proceedings against defaulting borrowers – has been picked apart for its potential damage to the banks’ capital position.
The argument that the banks’ capital strength must be protected at all costs is predicated on the notion that stronger banks will assist in the recovery of the economy and bring about rosier times for us all. In the meantime, the message from bankers and central bankers alike is all too clear. Mortgage borrowers and credit-starved SMEs will just have to lump it. The banks are simply doing what comes naturally.
Next Week
Failing the success of negotiations over the weekend the Financial Regulator will move on Monday to have the High Court confirm the appointment of an administrator to Quinn Insurance. Also on Monday the ESRI will publish its influential quarterly economic commentary.
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