Do farmers want to invest?

It’s now almost four years to the day that the Irish Farmers Journal carried a lengthy article outlining that FBD Holdings, the quoted company, had told its major shareholder, FBD Developments (the old co-op) that it would rather not pay back the €60m it owed, but proposed instead that it would form a 50:50 joint venture to take over and run the hotels and property interests of the quoted Holdings company.

This was seen as an astute move by the quoted company at the time and the share price responded positively. FBD Developments (the co-op) was seen to have done the decent thing in facilitating its quoted offspring, but nobody pretended that it was a good deal for FBD Developments; though its chair Padraig Walshe was put on the Holdings board. See agribusiness on pages 16 and 17.

With the benefit of hindsight, that was the first indication that FBD Holdings, the insurance company, was not as flush with cash as had always been assumed. But profits for subsequent years were good. However, it now appears from Monday’s announcement that with the present state of knowledge, these profits have turned out not to be as high as was previously declared and the dividends were paid out on the basis of profits which have had to be significantly readjusted downwards.

Today, the position of FBD as a group is serious. The quoted Holdings company is again proposing to tap Developments (the co-op) for cash in return for the other half of the hotels it doesn’t already own, except this time the co-op will be lumbered with large debts and will be the owner/operators of a hotel and property company. This is an area of business in which its directors have absolutely no expertise and I suspect little interest.

Even then, the cash injection of €48.5m from FBD Developments is not enough to plug the hole created by the only now acknowledged losses and new solvency requirements.

Extra money, at least €50m, has to be raised, apparently by way of a high interest bond, which will further impede the company’s ability to compete in what is a tough marketplace.

Underneath it all is a strong core business based on farmer loyalty. It is now proposed to concentrate on this core business, a business which I gather has always been, and continues to be, profitable. Rather than raise a new bond at a high interest rate on the markets and borrow to buy hotels, I cannot understand why FBD’s loyal farmer customer base cannot be given an opportunity to invest in their own company, either by way of a rights issue or to directly invest in the fixed interest bond. The share price has fallen so heavily that it may be worth exploring if FBD Developments (the co-op) should sell all the hotels, even if at a discount and buy the rest of the insurance company it doesn’t already own.

Meanwhile, we await the two EGMs that have to take place. I would hope that this time there will be time for serious debate and discussion and that all legitimate questions will be fully answered.