Vol. 414 No. 9
9 Mr. G. O'Sullivan asked the Minister for Industry and Commerce the number of companies in which the IDA have taken any equity investment in each of the last five years; the number of jobs created as a result of that investment; and if he will make a statement on the matter.
The question of investments in a company's shares by the IDA is a day to day matter for the Authority, and is not one in which I have any direct function. However, I understand from the IDA that the Authority took shares in five companies in 1987, eight in 1988, 29 in 1989, 38 in 1990 and 52 in 1991 to date.
I also understand from the Authority that, invariably, these companies would also have benefited from other IDA incentives, for example, grants of various kinds. Consequently, it is not possible to say how many jobs were created as a result of investments in shares specifically.
In the light of the imminent merger of NADCORP with the IDA, will the Minister state whether the role of the IDA will be increased and expanded having regard to the fact that NADCORP will no longer exist to engage in equity provision and business promotion?
The IDA, as the Deputy will have ascertained from my reply, have greatly increased their equity holdings in recent years. I foresee that policy continuing and intensifying and performing broadly the functions carried out by NADCORP before they were merged with the IDA.
Will the Minister state, in relation to the companies he has listed over the last five years in which the IDA have taken equity, whether they were Irish or foreign companies? Was it a condition of giving a grant to a foreign company that the IDA would have participation rights?
I do not have a list of the companies here but the Deputy can take it that the vast majority would have been Irish. Some companies probably would have been foreign but they would be a small minority.
As well as merging NADCORP with the IDA we have also abolished Fóir Teoranta. Whereas the Minister's list would indicate an increasing pattern of the IDA taking equities in these companies, will he indicate whether there is any other discernible pattern? Are these companies regarded as having considerable potential, did the companies in trouble need an equity injection and was this the only way they could get it? Has any analysis been done of the companies which benefited apart from saying that 52 companies benefited in 1991 and so on?
Obviously, the IDA did a study from which they concluded the company would benefit from an equity investment. By "equity" in this context I mean not just ordinary shares, I am also including preference shares because quite a proportion is in respect of redeemable preference shares at a fixed coupon. As well as benefiting the company, the policy which the IDA have been pursuing in recent years is a result of a general policy decision made by me that there should be a greater element of repayability in the support given to industry, particularly to Irish industry, so that the State can benefit from successes. The State loses very heavily on the failures — there is nothing we can do about that — but it should not lose on its direct assistance to the successes because some of them are, happily, extremely successful and it is no great strain on them to repay part of the assistance which has been given to them. The aim is that at the end of a three year period from earlier this year 50 per cent of the assistance given to medium sized Irish companies should be in a form which would be remunerating and ultimately repayable. I believe that the IDA will achieve that objective but it will have to be phased in over a three year period because it would be too much of a jolt to try to do it all at once.
In view of the upward trend in the taking of equity by the IDA and various companies, have the IDA followed their equities stake by the appointment of members to the boards in the various companies concerned and if so, is that a general policy or a policy of Government or of the IDA?
I am sorry, I have just got a note about a matter which I was reading and it is rather important——
Is it about Carysfort?
No, it is to inform me that Mr. Dermot Desmond is applying in the High Court to have me committed to prison for contempt for criticising him.
Would the Minister find that easier?
The Minister can rely on the unusual spectacle of The Workers' Party picketing to get him out.
It might take a bit more than that.
May I repeat the question? In view of the upward trend in the number of companies in which the IDA have taken an equity in the past number of years have they followed that policy by the appointment of members to the board of those companies? If it is Government or IDA policy can the Minister further state whether there could be a clash of interest at some later stage by virtue of competing products on the market or have the appointments to the boards been from members of the staff of the IDA or are they from outside?
I do not have that information readily at hand. When replying I will have to speculate to some extent and rely on my general experience rather than on specific figures which I can give to the Deputy by letter if he requires them. In the great majority of cases the IDA would not seek to appoint somebody to the board, in some cases they do. They would not normally be staff members but they would be people known to the IDA for their experience and their expertise whom the IDA would ask to go on the board to represent them and to convey the IDA's views on the company and how it should be run and to report back to the IDA if problems were perceived to be arising.
Can we proceed to Question No. 10?
Is there a range of percentage investment, in other words a minimum percentage of the equity which the IDA would take and a maximum beyond which they would not go in participation in these situations?
Obviously, it would normally be a minority interest. I imagine they would rarely go above 25 per cent and usually it would be as low as 5 per cent or 10 per cent. There is power in the Industrial Development Act, 1991, which passed both Houses last night, to hold more than 50 per cent in preference shares. Up to now the limit on preference shareholdings was 50 per cent. Because of the merger with NADCORP it was thought desirable to increase the legal right to hold preference shares to above 50 per cent but that does not apply to ordinary shares.
Question No. 10 please.
Having regard to the fact that it is well known that a minority equity interest in the company provides very little protection to the investor, has consideration not been given to a more secure form of public money investment by means of securing the debt by debenture charge or something of that nature?
The shareholdings are entered into on the basis of shareholder agreements in each case which give protection. It is well known that a minority shareholder in a private company has only limited protection but he does have much more extensive protection now under the terms of the Companies Act, 1990, than he did previously and if he holds 25 per cent or more he can block a special resolution. I do not think the Deputy should be unduly concerned in these circumstances. I am sure he will realise if the IDA were to seek to exercise very stringent control over the company, the company would not welcome such IDA investment. The promoters of the company and the owners of the majority equity would want to be free to run the company within reason as they see fit and in their best commercial interest.
May I ask a brief question?
Progress is sluggish today.
I would ask the Minister to be careful in advising the IDA. What they are essentially doing is investing risk capital: that means a risk must be taken. If the IDA are excessive in their zeal to protect the State's interest then the business will not get off the ground. They must be a venture capital company now and not just a grant-giving company or an ordinary shareholder. They must take greater risks than an ordinary bank might do in these circumstances.
I agree with the Deputy.
Question No. 10 please.
