NAMA and Zoe-Related Developments

One of the key questions relating to how NAMA is going to operate is the price that will be paid for the assets it acquires.  Last week’s Sunday Tribune reported that

The National Asset Management Agency (Nama) plans to impose discounts of between 25% and 33% on the most devalued loans contained among the €80bn of property assets to be transfered to the state-owned organisation.

The Tribune story speculated that discounts of this size would help NAMA to break even or perhaps make money over its ten-year life cycle. Of course, one of the problems that we have had when thinking about this issue is that these discussions are happening in the abstract without reference to detailed knowledge about specific loans.

For this reason, the ACC-triggered High Court examinership of Liam Carroll’s Zoe Group is very helpful in giving us a specific example to discuss.  In Monday’s Irish Times, John McManus reported the following:

Applying for court protection Zoe said that if the group of six companies, which have total debts of €1.2 billion, was liquidated, they would have a deficit of €900 million. Based on this writedown value, properties on which it has borrowed €1.1 billion from eight banks would fetch €275 million if they went on sale this morning.

That means a 75 per cent writedown for the banks.

Ok then, let’s have a write-in competition. What do readers think is the correct price at which the Irish taxpayer should purchase these Liam Carroll property investments?  The €275 million they are worth today, the €550 million they’d be worth if they doubled in price or the €737 million (one third discount relative to €1.1 billion) that the Tribune reckons would be the lowest possible price that NAMA would pay?

In interpreting the various answers put forward, it might be helpful to keep in mind that AIB has over €24 billion in pure development loans and has core equity capital of about €8 billion.