Dáil Éireann Debate, Wednesday - 23 May 2012
8Deputy Seamus Kirk asked the Minister for Finance his views on the best use of the substantial cash reserves on hand with the National Asset Management Agency; and if he will make a statement on the matter. [25595/12]
Amharc ar fhreagraI am advised by NAMA that it plans to invest substantial funding over its lifetime in preserving and enhancing the assets that secure its loans, including significant investment in assets located in Ireland, and that a substantial portion of its cash reserves will be used for this purpose. In fact, the chairman of NAMA today announced plans to invest €2 billion by 2016. By the end of March 2012, the agency had invested more than €1 billion in the preservation, enhancement and completion of property assets underlying its loan portfolio. More than €500 million of this had been committed to assets in Ireland and this is helping to secure the direct employment of thousands of employees in small and medium trading businesses located throughout the country, in addition to substantial additional direct and indirect construction and property related employment in general building works including re-fit, refurbishment and upgrade of NAMA-controlled properties. NAMA advises me the other significant area in which it will employ its cash reserves is the repayment of the senior bonds which NAMA issued to fund the acquisition of its assets. NAMA has already repaid €1.6 billion of this debt and I am aware the agency is firmly on course to meet the target of reducing NAMA debt by €7.5 billion cumulative by the end of 2013. NAMA will achieve this target from interest and principal receipts from its loan assets and from the proceeds of asset disposals by its debtors. Under the Act, NAMA is required to consult with me on any proposed tranche of debt repayment.
In addition to repaying NAMA's debts and advancing working and development capital to enhance its assets, NAMA will use its cash reserves to meet the agency's ongoing funding requirements and operational expenses. In this context I am advised the NAMA board considers it will not require additional resources from the Exchequer over its lifetime.
Additional information not given on the floor of the House.
In managing its liquidity needs, NAMA must ensure that it has available liquidity over the medium term to meet all of its contractual obligations as they fall due. Such obligations, as outlined, include its day-to-day operating costs, coupon payments due on its bonds and derivative contract payments. It also includes the advances to debtors for working capital and project funding which are often required at short notice. I am advised that updated liquidity projections, based on these various expected inflows and outflows, are reviewed on a monthly basis by the NAMA board.
In terms of cash management at the agency I am advised cash is either on deposit with approved counterparties or the Central Bank or invested in qualifying liquid assets such as short-term Irish Government securities. The Deputy will be aware that €3.06 billion of NAMA's cash reserves was utilised in facilitating a short-term bridging transaction relating to the IBRC promissory note payment due on 31 March 2012. I am advised by NAMA the rate earned on this facility is within the range of returns achieved on NAMA's short-term investments.
The agency has also advised me that cash balances tend to fluctuate for a number of reasons, including the scale of NAMA's business, the fact the timing of loan and property sale transactions is not readily predictable and the time lag between cash receipts from debtors and NAMA senior note redemptions.
I thank the Minister for his reply. I welcome the statement made by NAMA today, in so far as it goes, on the investment of €2 billion over the next four years. NAMA has access to up to €5 billion to invest in working capital and the completion of projects in its remit. The key test is whether the €2 billion it is to invest will add more than €2 billion in value to the assets in which it is investing. That can only be judged over time. On 27 March the Minister confirmed to me that NAMA had cash reserves on hand of €4.3 billion and it was earning a rate of 1.1%. As NAMA needs immediate access, it invests in liquid assets, which is just as well given that a few days later it was required to hand over €3.06 billion in respect of the bond that was issued instead of the promissory note.
NAMA has proposed providing up to €2 billion for vendor financing. Will that also come from its cash reserves? Potential buyers will essentially be lent money by NAMA to buy NAMA assets. Will that in any way reduce its ability to reach €5 billion in terms of investing in projects and working capital?
It is not the same €2 billion, but an additional €2 billion.
I know that.
NAMA feels it can fulfil this commitment and-----
Is it from the €5 billion, which is the ceiling?
----- it has the resources to do it.
Sinn Féin has argued we should use NAMA's cash resources to stimulate the economy so I welcome today's announcement. I have not seen clarification on this matter in the NAMA statement. Will the €2 billion to be invested in coming years all be spent in Ireland? Of the €1 billion that has already been invested, more than half of it has been spent in Britain. Given that NAMA has €5 billion in cash assets for bonds that are not redeemable until 2020, will the Minister consider issuing a direction order for NAMA to invest in other projects on which it could get a return? For example on State projects it could get a return of 1.5% to 2% and not only on assets it has.
I am concerned about NAMA's bonus scheme for developers. As soon as it gets back the amount for which it bought the loans from Anglo Irish Bank or other banks, developers can keep a little bit extra. We need to ensure that this injection of €2 billion does not allow developers, who have left bad loans with Anglo Irish Bank, AIB or Bank of Ireland for which the Irish taxpayer has picked up the tab, to benefit from this.
I welcome that NAMA funds might be invested back into the economy to create employment and hopefully growth, which seems entirely sensible. I agree completely with the Minister's earlier comments. However, in what should it invest? Are the investment and employment sustainable? What are the long-term impacts of investing in particular areas? Is the Minister not concerned that NAMA's focus seems to be essentially on trying to refloat the property market, which was precisely what got us into trouble? While, of course, we need housing, I am concerned that the whole thing seems to be predicated on keeping as much as is possible the private developers, who helped us get into this mess, in business by paying them. They will often own the assets at the end of the process rather than us owning them and also the rental revenue coming back to us on a long-term basis, which would also be a way for us to control the property market in future and prevent the sort of speculative bubble market in property which caused the crisis in the first place. Should we not have more direct control by owning the assets that will generate revenue and wealth for the economy in the future?
On Deputy Doherty's question, based on this morning's statement by the NAMA chairman, Mr. Frank Daly, my understanding is that the money about which he was talking is to be spent in Ireland. The Deputy will be familiar with the types of projects already. For example NAMA invested in refitting the cinemas in The Square in Tallaght. They are now open and employing 80 people. Previously it was a piece of dereliction in The Square in Tallaght. It invested approximately €15 million into finishing a partially constructed shopping centre somewhere on the north side of Dublin - I do not have the centre's exact name. There is sufficient interest for all the units to be let. When those units are let, 280 people will be employed there.
IDA Ireland believes that modern computer-friendly office blocks are the advance factories of this generation and that we will not be able to drive our inward investment programme without them. It indicates that there is a shortage of them in Dublin and that by 2015 such a shortage will inhibit IDA Ireland's work. NAMA is in negotiations with a particular developer on the quayside adjacent to the Irish Financial Services Centre to build one of those office blocks.
Houses near the golf club in Dún Laoghaire have been completed with NAMA money and have been put on the market. As nearly all of them have been sold, permission has been given for more of them, which NAMA is also financing. Its mandate is to take over the impaired loans of banks and use the property portfolio in the best interests of the taxpayer. It can maintain, upgrade or dispose of assets. The bottom line is that it is acting not in the interest of developers or banks but in the interest of the taxpayer so that we get something back for the money that was used.
NAMA frequently gets knocked, but it must be remembered that it has many enemies. Many developers do not like what NAMA is doing. Some developers have converted resources to their own and to their families' benefit and NAMA is going after them. Other people are coming in with money and want to get a bargain without paying a decent price and they get offended when they cannot do a deal. NAMA is working in the interest of the taxpayer as it is required to do under law and I am not supposed to interfere with it. I can advise it on the general policy, but it is making the commercial decisions and so far I believe it is doing a reasonable job.
I have some concerns over NAMA's intention to use €2 billion of its cash reserves on vendor financing. In effect it will lend money to people or institutions to buy NAMA assets. While it might look good in terms of achieving its sales targets, given that the agency is trying to reduce the debts owed to it, adding to the debts by lending money to prospective purchasers may not be appropriate. I know it is a financing model that is well established and frequently used, but given that this is a State agency trying to reduce the money it is owed, I am not convinced of its merits.
It will be a question of how it works out. NAMA now has employees with significant experience in property development. It would be unreasonable to suggest just running the property portfolio and selling everything if by investing a few million euro it were possible to double the price that could be achieved on the sale. That should form part of what a property management company should do in the interest of the taxpayer thereby getting the maximum from it. The Deputy should call representatives of NAMA to appear before the Committee of Public Accounts if he wants a longer chat. Written Answers follow Adjournment.
