A prospectus document for Trinidad Petroleum Holdings Ltd’s (TPHL) issuance of a seven-year callable, secured bond suggests that the government may have had no legal grounds to offer Patriotic Energies and Technologies Company Ltd such favourable concessions regarding the purchase of the Pointe-a-Pierre refinery.

In the prospectus for the bond listed on the Luxembourg Stock Exchange, it lists the particulars of TPHL’s callable bond, where, in section titled “Limitation on Asset Sales” suggests that the government’s three year and ten year moratoria offer to Patriotic was not possible.

Under the broad section of “Covenants”, the document highlighted the negative covenants by which the issuer of the bond, TPHL, would be bound.

It noted that “the Issuer will not, and will not cause or permit” any Guarantor (Guaracara is listed as a Guarantor) to make any asset sale unless following conditions are met.

Two of those conditions necessary according to the document were if “the consideration received for the Asset Sale is at least equal to Fair Market Value” and “At least 75 per cent of the consideration received for the Asset Sale is in the form of cash or cash equivalents (as opposed to capital stock, notes, tangible assets).”

As Guaracara, the entity that owns the Pointe-a-Pierre refinery assets, is listed as a Guarantor for the TPHL secured bond, the creditors have a first lien priority on the assets as collateral in the event of circumstance that triggers default.

Therefore, if the bondholders have a claim on the refinery’s assets as collateral in the event of a TPHL default by virtue of the first priority lien—they would be able to sell the refinery assets to recoup their investment.

The problem arises with the concession that was given to Patriotic after having the winning bid in the Request for Proposals (RFP) for the sale of the asset.

Finance Minister Colm Imbert announced in the parliament on September 20, 2019, that Patriotic would be given “a three year moratorium on all payments of principal and interest, towards the purchase of the refinery and a further ten years, at a fair market interest rate, to complete the payment of the sum of US$700 million it has offered for the refinery.”

This begs the question, if the bond covenant states that 75 per cent of fair market value of the asset must be given upfront, why would the government grant such a concession when it would have received the fair market value for the asset (by virtue of auctioning the refinery in the open market) and receiving an initial offer of an upfront cash proposal of US$700 million?

Energy Minister Franklin Khan recently announced that the key issues at the end of prolonged discussions between the government and Patriotic—and the government rejecting the offer made, were the purchase price financing, the restart financing and first priority lien on the assets.

Following the government’s rejection of Patriotic’s proposal, Oilfield Workers Trade Union leader Ancel Roget held a press conference on November 1, 2020, where he noted: “Let me just say that, though it was listed as number three and perhaps less prominence was paid on that particular issue, the issue of first priority lien, that is the main issue here in this whole acquisition process stumbling block.”

Meanwhile, former Minister and current CEO of the Arthur Lok Jack Graduate School of Business Mariano Browne indicated to the Sunday Business Guardian (SBG) that the issue of a lien on the asset should have been taken into consideration at the start of the process.

Browne said: “It is difficult in the circumstances, to understand how, an RFP could go out without giving notice of such a condition. Further, having examined the proposals, the evaluation committee is limited in accepting any proposals, by the existence of a pre-existing condition.”

Notwithstanding, Roget said that Patriotic was also surprised that the issue of restart financing resurfaced as one of the factors that led to the rejection of the entity’s proposal since, this would have been addressed in

2019 when Patriotic responded to its ability to finance the purchase and operation of the refinery.

Moreover, Roget disclosed that it was only on 17th of July 2020 that Patriotic was first alerted that TPHL had major difficulties getting around some major financing issues related to the offer made by the minister of Finance on 20th September of last year.

On August 28, TPHL’s international attorneys confirmed that the issues “may be insurmountable based on the offer made by the Minister of Finance in September” 2019. Roget added that on September 11, TPHL provided patriotic with the documentation related to the existing liens.

According to Browne, in this matter a question must be asked about the Finance Minister’s foreknowledge. He continued: “If they did not know, you have to ask the question, How could you not know? What are your advisors there for?”

Whether Imbert knew or not, Roget revealed in his press conference that due to the issues facing TPHL, in it’s most recent proposal Patriotic submitted an upfront cash offer “supported by a letter from one of the top ten world investment banks”, and it also addressed the lien challenges and suggested a path forward.

Recently an Evaluation Committee appointed by Cabinet to reassess the Request For Proposals (RFP) for the use of the Guaracara (Point-a-Pierre) refinery was appointed by the Prime Minister, which would prolong the negotiation process for the sale of the asset.

The TPHL prospectus noted that government appointed Scotiabank for the sale of Guaracara and it presumes that the government would have motivation to sell the assets since it noted if it is unable to be sold “this may have a material adverse impact on our financial condition and results of operations, and on our ability to make payments on the Notes.”

Furthermore, the prolonging of the process is not one that is without costs. The prospectus noted: “The estimated cost of preservation of the Refinery for the period from January 2019 through September 2019 is T.T.$32.9 million.”

Assuming that the annualised cost of preservation is $43.87 million ($3.66 million per month), if this deal is not closed in 2021, it would amount to approximately $88 million.

If the deal does not close, it would also cost Patriotic millions of US—as Roget disclosed that these funds were spent in the production of a Comprehensive Business Plan, detailed market studies which has information about new markets that Petrotrin never explored, detailed feasibility studies and all Patriotic’s technical know how.

The TPHL prospectus also continued to note: “If we are unable to sell Guaracara’s refining assets, we would continue to keep the Refinery in preservation mode, until such time as we either sell it or abandon it.”

TPHL also cautioned bondholders of the risks related to its relationship to the government, who as sole shareholder appoints all TPHL board of directors, which in turn appoints our executive officers.

It disclosed that as a result, TPHL may be directed to engage in activities or pursue policy objectives that give preference to the objectives of the Government rather than to its own economic and business objectives.

The prospectus noted: “In circumstances involving a conflict of interest between the Government, as our sole equity owner on the one hand, and holders of Notes, as our creditors on the other, the Government may exercise its power to control us in a manner that would benefit the Government to the detriment of the holders of Notes.”

It also highlighted the reach of the Minister of Finance as the corporation sole in this relationship. The paperwork stated: “The Corporation Sole has the power, with the permission of the President, to acquire, purchase, take, hold and enjoy movable and immovable property of every description, and to convey, assign, surrender and yield up, mortgage, demise, re-assign, transfer or otherwise dispose of, or deal with, any movable or immovable property vested in the Corporation Sole upon such terms as the Corporation Sole seems fit.”

The SBG requested comments from both Ministry of Energy and Finance on the matter via email. The SBG asked:

Based on the TPHL Callable bond agreement that expires in June 2026—the assets cannot be disposed unless receiving at least 75 per cent of the fair value in cash or cash equivalents up front. If the bond holder is dependent on assets of the guarantor (Guaracara in this instance) for collateral how would the bond holders be protected in the event that it is transferred, especially if it is done so over a period of time?

The Ministry of Finance’s press release on 20th September, 2019 indicates that the RFP was “for the sale of the Pointe-a-Pierre Refinery” where the most recent press release from the Ministry of Energy indicates that a evaluation committee was put in place to review the RFPs “for the use of the Guaracara (Point-a-Pierre) refinery”. Is there any particular reason for the change in wording? Or do the two mean the same thing?

Finally, is there a provision in the bond indenture for the TPHL Callable bond agreement that expires in June 2026 that allows for the government to sell the Guaracara assets for over a three year or ten year period? (With reference to the moratorium that would be granted to Patriotic if they prove successful).

Up to press time, neither responded.