The complexities around Treasury’s corporate structures and its business dealings means its future is clouded by doubt

THE SLOGAN on the front of Treasury China Trust’s (TCT) 2011 annual report was “moving ahead”.

In fact, the company’s share price has been in retreat, slipping about 47 per cent from its level of two Singapore dollars a share roughly a year ago.

In a five-page chairman’s statement, Irish businessman Richard Barrett, a significant shareholder in the Singapore-listed property developer, strikes a largely upbeat tone.

Except for the last paragraph where he cautions that certainty as to the availability of funding from Chinese banks for the real estate sector was “patchy at best”.

However, he added that TCT’s “cashflow, prudent gearing and strong banking relationships see your company well placed to overcome this and prosper”.

Remarkably, there’s no mention of the enforcement action on January 9th undertaken by the National Asset Management Agency against Treasury Holdings in Dublin.

Nama is owed about €1.7 billion in loans by Treasury Holdings as a result of borrowings transferred from Irish-owned banks from 2010 onwards.

It called in most of these loans and had receivers appointed to the assets behind the borrowings.

TCT does not have any direct link to the Dublin-based Treasury Holdings, but its fortunes have become entangled with the insolvent Irish property developer due to the involvement of Barrett and Johnny Ronan in both entities.

Barrett and Ronan jointly own Treasury Holdings. Between them, they control about 30 per cent of the shares in TCT.

Last week, Barrett acquired two subsidiaries of Treasury Holdings that had provided management and property services to TCT since it was listed on the Singapore stock market in June 2010.

The entities were Treasury Holdings Real Estate Pte Ltd (THRE), which acts as the trustee manager to TCT, and Treasury Holdings (Shanghai) Property Management Co Ltd, a property manager for TCT. The sales were announced to the Singapore stock exchange on August 28th.

Between them, the two companies earned 24.7 million Singapore dollars in fees from TCT in 2011.

TCT is a substantial commercial property developer in China, with assets in Shanghai, Beijing and Qingdao. Its gross assets under management were more than 2.7 billion Singapore dollars at the end of 2011.

The deals were concluded in haste the night before as Barrett feared that Treasury Holdings could have been wound up in the High Court as a result of an action by KBC Bank Ireland, which is owed €75 million in relation to the Spencer Dock development.

Barrett feared that this could have resulted in a breach of covenants around a €44.5 million bond held by TCT with Forum Partners.

Forum would have been entitled to call in the sum owed by TCT, which would not have had the free cash to meet this demand.

Whether Forum would have actually proceeded in this manner is not clear.

At the time of the announcement of the sale of the two Treasury subsidiaries, no sale price was given and other details about the transactions were scant.

Barrett subsequently told The Irish Times that he personally agreed to pay €2.263 million for the two companies. It later emerged that this was to be paid in tranches over a two-year period.

This sum was the higher of two valuations secured from Irish accountancy firms that he wouldn’t identify. He said the company’s auditor was not one of them. KPMG audits THRE.

On August 28th the transactions were mentioned in court by KBC and Nama during a hearing on a winding-up petition filed by KBC.

Nama changed its stance on that action from “neutral” on Monday to joining KBC in pursuing a winding-up of Treasury as a result of the deals emerging.

“There is nothing to hide here,” Mr Barrett told The Irish Times in an article published on August 31st.

He added that under section 139 of the Companies Act 1990 any transfer of assets made by a company that then goes into liquidation could be reversed if it was not done at fair market value.

This point was made to the court by Treasury’s counsel during the winding up action, which will resume next month.

The publication of the financial details around the sale of the two Treasury Holdings subsidiaries spooked someone in Singapore because the shares were temporarily suspended from trading last Friday.

A statement outlining the financial details of the deals was published on Monday when the shares resumed trading, with one interesting line. “The board wishes to clarify that such financial information, which has been provided by the shareholders of THRE and THPM for the purposes of the valuations was not verified by the board, and any assumptions and considerations used to derive such financial information were not reviewed by the board.

“Accordingly, the financial information should not be taken to be an indication of the prospects or future performance of TCT.”

To some observers of TCT, this is the other board members distancing themselves from Barrett.

TCT’s share price has declined by 16.5 per cent since the shares began trading again on Monday.

Over recent weeks, details have emerged of tensions that existed within the boardroom of TCT in relation to Treasury Holdings and the Nama enforcement actions and Barrett’s desire to take over THRE and the property manager.

On July 26th, Barrett sent an email to his fellow directors of TCT, informing them that they were all being stood down as directors. THRE, as trustee manager, had the power to do this.

“Gentlemen, modern corporate governance seeks to regularly create more diversity in board compositions, with a view to promoting new perspectives, skills, experience, knowledge, energy, contact bases and direction for the benefit of shareholders/unitholders through the regular rotation of directors,” he said.

“A review of THREs articles reveals no finite terms for directors, which does not accord with modern governance practice.

“Accordingly, the shareholder of THRE has resolved that those directors appointed on 18 February 2010 have been deemed to have vacated their directorships on 25 July 2012.

“THRE wishes to place on record its thanks for their service to the directors deemed vacated as of 25 July 2012, (all of you on this email and me).”

This shocked the three non-executive directors on the board – Ray Horney, Jen Shek Voon and Stuart Leckie – especially as Barrett, TCT executive director Richard David and TCT’s legal counsel Rory Williams were subsequently reappointed as directors as well as some new blood.

Documents filed with the Singapore stock market about the resignations of the non-executive directors indicated that there were disputes between the parties in relation to the resignations.

Jen Shek Voon this week told The Irish Times that this was not the case. “The reasons given for our sacking are totally inaccurate in the SGX template announcement,” he said. “The reason given was that all were being rotated off in accordance with the policy of retiring directors that were appointed on 18 February 2010.

“Nothing could be further from the truth. The reason for our departure is not rotation, but a sacking by the significant shareholder of the trustee manager.”

Jen said there had been disputes at board level about non compliance with listing rules in Singapore, and other matters.

This is corroborated by Horney, who had worked with Barrett for about 15 years with TCT and predecessor companies.

“The ones stood down were the ones concerned about the corporate governance of TCT and had opposed many of the things put forward,” he said.

Leckie said: “It was just outrageous. It was nonsense with Barrett saying it was to improve corporate governance. Six were removed, but the three Treasury Holdings directors were immediately reappointed. It’s farcical.”

The tensions can be traced back to the turn of the year. A board meeting was held on January 11th by conference call, at which a resolution was considered relating to a change of ownership of THRE.

This was around the time of the standstill agreement with Nama.

The resolution involved THRE being sold to a company controlled by Barrett.

This was accepted by the board but the decision was subsequently rescinded in February after the non-executive board members became aware of certain information.

None of the directors were prepared to discuss this, citing board confidentiality. However, it appears that there was a dispute around the minutes of the board meetings in January and February.

The non-executive directors appear to have pushed for TCT to disclose details of the litigation between Nama and Treasury Holdings in Ireland.

“It’s quite remarkable that board directors were always told it’s no problem, we’re going for a judicial review, these people in Nama don’t know what they’re doing, blah, blah blah. Dont worry. Unit holders were not properly informed as to what was going on,” Leckie said.

According to Leckie, the non-executives on the board had also argued with the Treasury directors since last December that Goldman Sachs should be engaged to carry out a full strategic review of TCT and its activities.

This was to recommend ways to close the gap between the share price of the company and its net asset value. TCT is currently trading at a discount to its NAV of more than 70 per cent.

This was eventually agreed to and the report was provided to the board at a meeting on July 23rd.

Leckie said the report was “very good” and that it was agreed at the board meeting that it would be considered again at a separate meeting within two weeks. Three days later, the non-executives had been removed from the board.

“They have been sitting on this for six weeks now. What they are doing about it I do not know.”

The Irish Times has learned that the Goldman Sachs report puts a value on the trustee manager of more than 50 million Singapore dollars. This is a multiple of what Barrett is paying for two subsidiaries of Treasury Holdings.

Treasury and Barrett would not comment on this yesterday, but it will no doubt be of interest to both Nama and KBC in the winding up action against Treasury Holdings here.

Treasury is due to submit an affidavit with details of the transaction later this month before the case resumes in the High Court on October 9th. Nama declined to comment on the matter while KBC has made no comment to the media since the winding up action began in recent weeks.

This is not the first time that questions have been raised around a transaction by Treasury Holdings and its owners.

In June of this year, Nama initiated a lawsuit against Barrett and Ronan in a bid to reverse a controversial transaction where €20 million of TCT shares were allegedly transferred out of the group to the benefit of the owners for €100,000 and unsecured loan notes. This is the so-called Tail transaction, which took place in March 2010, just before Treasury’s loans were transferred to Nama.

Nama has claimed that there was no commercially valid reason for that transaction made when Treasury was either insolvent or in very difficult financial circumstances.

In an affidavit, John Bruder, managing director of Treasury Holdings Ireland, said the Tail transaction was not illegal and there was a valid commercial reason for it. He also argued that Nama’s handling of Treasury’s efforts to

sell the group’s Nama loans had damaged efforts to reach agreement on the Tail issue.

The case will be heard in the Commercial Court.

Barring a last-minute deal with a white knight investor, Treasury Holdings’ days look numbered.

The developer is pursuing a deal with Morgan Stanley, but neither Nama nor KBC appears minded to accept the offer that has been tabled.

TCT’s share price decline indicates clearly the extent of the fallout from Treasury’s woes in Ireland on the Singapore company.

Treasury recently lost a judicial review against Nama’s enforcement actions, but plans to pursue a Supreme Court appeal.

Then there’s the winding up action.

The complexities around Treasury’s corporate structures and its business dealings means its future is clouded by doubt.

What is clear is that time is running out for Barrett and Ronan to save their property empire.