Thursday, 11 March 2004

Questions (26)

Dan Boyle


25 Mr. Boyle asked the Tánaiste and Minister for Enterprise, Trade and Employment if a £10 million bond has been surrendered by the Government to a company (details supplied); and the reasons such a bond may have been returned. [8114/04]

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Written answers (Question to Minister for Enterprise)

It is assumed that the question relates to certain security provided to the State as counter cover for State guarantees that remained in place following the sale of Irish Steel to Ispat Mexicana in 1996. Specifically, at the time of the sale, Irish Steel Ltd. had outstanding loans from ACC Bank and the European Coal and Steel Community, ECSC, that were covered by State guarantees. As part of the sale agreement, it was agreed that Irish Ispat Ltd. would take over all the liabilities of Irish Steel Ltd., including the servicing of these two loans. The Government undertook to continue to provide guarantees on these two loans and this continuation was covered in section 7 of the Irish Steel Act 1996.

To protect the Government in the event of Irish Ispat Ltd. defaulting on the repayment of these loans, the sale agreement also provided the following protections for the State. A capital contribution of €5.86 million due to Ispat as part of the agreement for the purchase of Irish Steel Ltd. was lodged to an escrow account opened in the joint names of the Minister for Enterprise, Trade and Employment and Ispat Mexicana. It was agreed that the balance in this account could be unilaterally withdrawn by the Minister in the event that Irish Ispat defaulted on either of the ACC or the ECSC loans. Ispat Mexicana was obliged to provide a letter of credit from the Midland Bank in the amount of €5.09 million and Ispat Mexicana was also obliged to provide mortgage and pledge agreements in respect of certain assets as security against Irish Ispat's liabilities under the ECSC loan.

Irish Ispat Ltd. repaid the ECSC loan in full with a final payment made in July 1999. Once this loan had been repaid, Ispat Mexicana's obligations under the mortgage and pledge agreements, which had been provided specifically as security against this loan, were discharged and the company was formally released from these agreements.

Following the liquidation of Irish Ispat Ltd. in 2001, an amount of €10.6 million was paid to ACC on 30 November 2001 on foot of the State guarantee. The Department then proceeded to secure the reimbursement of this amount from the counter cover provided by the escrow account and the letter of credit. On 4 March 2002, the balance of just over €7 million in the escrow account was received while the balance, that is, nearly €3.6 million was recovered from the letter of credit in April 2002. As the State had been fully reimbursed for the amount paid out on foot of the guarantee, the Minister then agreed to the cancellation of the letter of credit. It should be stressed that the securities outlined above were provided specifically and exclusively as cover against the two loans, that the security was drawn on to the full extent possible and that the security was not available to cover any other liabilities.