Nama plan to protect large developers from collapse Sunday, May 17, 2009 By David Clerkin and Ian Kehoe The country’s largest property developers will be protected from collapse by the proposed National Asset Management Agency (Nama).
Under advanced plans being drawn up in conjunction with the Department of Finance, Nama will agree not to force up to 20 of the country’s top developers into receivership or liquidation.
This comes amid concerns over the likely impact of a large-scale developer falling into bankruptcy.
Officials have warned that the knock-on effects of a single developer collapsing are likely to be significant. The number of projects in which more than one developer has an interest means that forcing a single borrower into receivership could also cause others to go under.
Plans are being drawn up to ensure that bad loans taken on by Nama will be worked out over a period of at least ten years and that so-called ‘firesales’ of land banks at knockdown prices will be avoided, as officials fear that this would crystallise taxpayer losses.
‘‘They want to avoid fire sales of assets,” said a source familiar with the plans. ‘‘They are against the appointment of receivers or liquidators.”
Senior government sources insist that developers will remain liable to repay all the money they borrowed and that the government could not be seen to be giving them an easy way out. Many will inevitably face serious financial difficulties, they insist.
However Nama will work with some developers to get projects moving again. The agency will also source funds to lend to developers in its own right in certain circumstances.
This cash would be for projects that are stalled and need extra finance to complete, but which banks are unwilling to take on in the current climate.
Officials are also exploring the possibility of offering incentives to banks, perhaps by mandating them to manage some loans through newly formed subsidiaries and offering them a share of returns from projects to encourage them to manage their loans effectively.
Government sources insist that plans to establish Nama are advancing quickly, despite comments by Dr Michael Somers, head of the NTMA, to a Dáil committee last week, in which he said he remained unclear about how Nama would operate.
Government sources, however, insist that the NTMA has been fully involved in the planning of the new agency and that Minister for Finance, Brian Lenihan, has made clear that the NTMA will also be centrally involved in its operation and will be staffed appropriately.
Under the developing framework, the government plans to outsource large aspects of Nama. External advisers will be recruited to advise on everything from valuing assets to dealing with the European Commission.
Advisers will be asked to conduct an analysis of the eligible assets that will be transferred to the Nama balance sheet, as well as developing an appropriate valuation method for the assets. Mechanisms to provide a claw back to the government if it pays too much to the banks for the assets - or a claw back to the banks if too little is paid - are also under consideration. These would only come into play after a period of years as the assets are disposed.
They will also advise the NTMA on how to manage relations with banks.
The call for tenders was circulated by the NTMA last week and came as Somers told the Dáil Public Accounts Committee that the NTMA was not staffed to deal with the financial crisis. The NTMA documents were at odds with statements given by Somers last week, where he said he was unsure of the relationship with Nama and his agency, and expressed concerns about how it would work.
The NTMA documents stated that the agency had undertaken all the preparatory work required to establish Nama, including framing the actual legislation in conjunction with the Department of Finance and the Office of the Attorney General
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