The purpose of this Bill is to obtain legislative authority for the establishment and financing of a Finance Company whose main function will be the provision of loans on preferential terms in part substitution for grants for large-scale industrial projects.
A new grants scheme was given legislative sanction in the Industrial Grants (Amendment) Act, 1963 and the Undeveloped Areas (Amendment) Act, 1963 which became law on 20th February, 1963. These Acts lay down special conditions for cases involving grants by An Foras Tionscal in excess of £250,000. Included in the conditions are limits of up to 50 per cent of the cost of the fixed assets or £1,000 per worker employed in the industry, when in full production, whichever is the less. Grants within these limits might not be sufficient to attract to this country industries of a high capital cost with relatively low labour content. On the other hand we could not contemplate giving grants of up to 50 per cent of the cost of fixed assets in every case as these could amount to millions of pounds for some projects involving very little employment. The Government have examined various possibilities and have come to the conclusion that for cases involving very large expenditure the best arrangements would be to supplement the reduced rate of grant by a special loan.
There are grounds for arguing that part of the financial assistance to be provided by the State in such cases should be by way of subscription for share capital. Provision is being made in the Bill to faciliate arrangements of this kind. Equity participation by the State has been suggested to a number of industrialists interested in establishing factories here, but the response has not always been favourable. Insistence on a share in the equity capital in all cases where large grants are provided by the State might, as the Committee on Industrial Organisation recognised in a recent report on industrial grants, take from the attractions of the grants scheme and hinder the efforts being made to attract worthwhile projects to the country.
The special loans scheme was thus devised as a partial alternative to equity participation. It implements one of the recommendations in the CIO report to which I have referred. The scheme is better in some respects than equity participation. The special loans will rank before all shareholders in the event of a liquidation, and provision is being made for a sharing in the profits in so far as dividends in excess of 7½ per cent are paid.
Promoters will be required to provide at least one-third of the cost of fixed assets and the State agencies concerned will be in a position to provide the balance of up to two-thirds. This arrangement will mean that the promoter of an industrial undertaking will be responsible for providing the working capital and at least one-third of the cost of fixed assets. Such an order of participation will be a guarantee of the promoter's confidence in the viability of the project and will be a strong inducement to make a success of the enterprise.
The grant constituent of the funds made available by the State will, of course, be subject to the statutory limits. Any balance to be provided by loan from State sources will be partly by way of a contract loan given by the Industrial Credit Company at normal interest rates and repayable within a period of up to 12 years with no capital repayment for the first two years, and partly by way of an unsecured special loan provided by the new company, repayable only at the option of the borrower, and free of interest for a period up to 7 years. Thereafter the special loan will bear interest at the same rate as applied to the contract loan, plus additional interest at the rate of ½ per cent for each 1 per cent per annum paid by way of dividend on the promoters' investment in excess of 7½ per cent. Promoters will be able to avoid the payment of this higher rate of interest by redeeming the loan. The arrangement ensures, therefore, that for successful projects the State will either participate in the profits or secure the return of the loan capital provided.
There are two reasons why it is necessary to form a new company. Firstly, it is outside the functions of the Industrial Credit Company to provide loans of the kind contemplated. That Company operates in accordance with the normal commercial criteria of a finance house and it would not be appropriate to require it to engage in this new type of business. The Credit Company provides special loans for re-equipment and expansion to meet conditions of free trade on terms which include waiver of interest and deferment of capital repayments for up to 5 years. These special loans are, however, secured loans and are in a different category from the unsecured loans redeemable only at the option of the borrower which the new company will provide.
Secondly, the new company will have other functions specified in the Bill. It would not, as I have explained, be practicable in general to secure for the State an equity interest where substantial financial assistance is provided by the Exchequer but it is desirable to take power to enable shares to be so acquired in any case in which equity participation would be a desirable and acceptable manner of providing finance. The new company will be responsible for holding any such shares on behalf of the State.
It also provides in the Bill that the company will have the powers of—
(i) taking up shares and debentures in hotel companies to which a grant or guarantee of borrowing has been or to be given under the Tourist Traffic Acts;
(ii) taking up shares in Aviation Development Limited, the development company established by the Potez interests in connection with the project to manufacture commercial aircraft in this country;
(iii) taking over from the Industrial Credit Company the shares and debentures held by it in Industrial Engineering Company Limited, Dundalk;
(iv) guaranteeing borrowing of companies to which An Foras Tionscal make grants.
In two hotel cases in which large grants and guarantees of borrowing have been approved, it was found desirable that the State should participate in the equity and this has been effected through Aer Rianta and the Industrial Credit Company. This opportunity is being availed of to make specific arrangements to provide for any further cases that may arise.
As regards the aircraft project, two companies have been formed, one a development company to be jointly owned by the Government and the Potez concern and the other a manufacturing company to be owned by the Potez interests. One half of the capital of the development company equal to the proved cost of the special tooling, but not exceeding £1.5 million, will be provided by the Government, and the special tooling will be the property of the development company. An equal amount of capital will be held by the Potez interests, representing the development work carried out by them, and the corresponding assets, including all the designs and prototypes, will also become the property of the development company. For the first ten years half of the profits of the manufacturing company in excess of £100,000 a year will be paid to the development company and no dividends will be paid by the manufacturing company to its shareholders until the amount provided through the development company has been recovered by it.
The Industrial Credit Company Limited holds shares to the amount of nearly £½ million and debentures totalling about £2 million in the Industrial Engineering Company Limited, Dundalk. The Credit Company's participation in the Dundalk undertaking arose out of Government policy for the utilisation of the engineering works of the Great Northern Railway when these works became separated from the transport concern. It is considered, in the circumstances, that the new company, when established, would be the more appropriate body to hold the shares and debentures on behalf of the State. These will be transferred to Taiscí Stáit at a realistic valuation which will take account of the losses incurred by the Dundalk company.
The provision authorising the proposed company to guarantee borrowings by companies to which An Foras Tionscal make grants is complementary to the power to issue loans.
The Bill provides that Taiscí Stáit will not take up shares or give loans or guarantees of loans except on the direction of the Minister for Finance, given after consultation with the appropriate Minister. The projects with which the new company will be concerned (with the exception of the Dundalk undertaking) will already have been examined by either An Foras Tionscal or Bord Fáilte as the case may be; in addition, projects involving special loans will have been examined by the Industrial Credit Company in connection with an application for commercial loans.
I would like to assure the Seanad that these arrangements will not complicate the grants and loans arrangements or add to the bodies that promoters have to deal with. To secure economy in administration, the new company's affairs will be managed by the Industrial Credit Company. Consequently, persons seeking loan facilities from the State will, as hitherto, have to deal only with that company. Subject to the necessary detailed arrangements being worked out, it is contemplated that the Industrial Credit Company, having satisfied itself as to the merits of an application, will divide the approved loan into two equal parts, one of which will be provided by the Credit Company itself in the normal way and the other half by the new company. Applicants will thus have no direct dealings with the new company and there is no reason to fear that the arrangements will complicate the work of industrial promotion.
The new company will thus be a channel for State investments undertaken on the basis of an examination of the projects by autonomous State agencies. It will have the duty of watching over the progress of concerns in which it holds shares, debentures or loan capital on behalf of the State and to bring to the notice of the Minister for Finance any development likely to affect those investments.
The company will have a nominal share capital; it is proposed to finance its operations by repayable advances from the Exchequer within a limit of £7½ million. A sum of £1½ million will be required for the investment in Aviation Development Limited and, subject to the valuation I have mentioned, up to £2½ million in respect of the transfer from the Industrial Credit Company of their shares and debentures in Industrial Engineering Company Limited. This leaves a balance of not less than £3½ million for the other purposes of the Company.
Taiscí Stáit will be required to furnish with its annual accounts, for submission to the Houses of the Oireachtas, a copy of the balance sheet and (where the Company is entitled to receive a copy) the profit and loss account, duly audited, of each company, whether public or private in which it holds 50 per cent or more of the equity capital. This will cover the two companies mentioned in the Bill and any other company in which Taiscí may acquire 50 per cent or more of the equity capital. Under the new Companies Bill it will be a requirement that private companies furnish a profit and loss account, as well as a balance sheet, to their shareholders. This arrangement will not cover loans but information about these will be given in the annual Report. The Minister for Finance will have power to direct the form of the Report and it is my intention that the Report will give particulars of any shares acquired, loans issued during the year together with the total amount approved and outstanding in each case, loans guaranteed and any amount paid, and remaining unpaid, on foot of guarantees, the purposes for which moneys are used and the terms and conditions on which the various financial facilities are provided. Publicity regarding loans issued by Taiscí will thus be on par with the publicity given to grants by An Foras Tionscal.
The availability of the company to serve as a holding body for certain State investments will fill a gap in our financial institutions. The special loans being provided under the Bill will enhance the attractive incentives now available to persons establishing new industries here and should reinforce the impetus given to industrial development by these measures.
I recommend this Bill for the approval of the House.