April 2012        

Private equity sharks hit Ireland’s shore


The neo-liberal onslaught on the Irish economy continues unabated. As the recession deepens and the policies of austerity bite even harder, the shock doctrine of privatisation steps up a gear.
     “When you are down, you are down,” the saying goes. And when you are down under capitalism you can expect no mercy.
     As NL wrote in Socialist Voice in April 2011, “private equity funds do not invest to build or sustain a company or service. They do so to make a quick profit, specifically at the expense of the company, its employees, and those who rely on its service or product.
     “They do so initially through what is known as a leveraged buy-out, where the debt amassed to make the purchase (and any other debt the investors may have) is loaded onto the purchased company.
     “They then strip the company’s assets: anything of value is siphoned off or sold, with no consideration for the future of the company. In addition to this, any capital reserves are raided and pension funds devoured, leaving a carcase and a shell of what used to be.”
     The most blatant case in recent years was that of Eircom. It was privatised in 1999, and since then it has been bought and sold several times.
     1. In November 2001 Eircom was taken over by Valentia Consortium, headed by Tony O’Reilly, head of Independent News and Media and a great Irish patriot.
     2. In May 2006 it was announced that Eircom was to be sold to the Australian investment group Babcock and Brown, in a deal worth €2.4 billion. The Employee Share Ownership Trust, which represents workers at the company, was to remain a minority shareholder.
     3. In 2009 Singapore Technologies Telemedia took over. It got the company for €130 million (the value of Eircom now).
     4. At the end of last month an insolvent Eircom successfully petitioned the High Court for examinership, and it will now be owned by its senior lenders.
     Telecom Éireann was the largest privatisation in the country’s history, raising €6.3 billion for the exchequer. Eircom was then a profitable and debt-free company, with a promising future.
     Eircom has now had six owners in thirteen years. It has been asset-stripped by means of the Eircell sale. The company now carries a mountain of debt—some €3.6 billion before debt restructuring is completed—and faces a very uncertain future.
     The citizens of Ireland, ultimately the ones screwed, have little to show except third-rate broadband and a deteriorating Third World telecom infrastructure.
     Meanwhile, there is no doubt that some have done very well from the privatisation and the various sell-ons. Tony O’Reilly and Denis O’Brien in particular will not be queuing for penny dinners.

Those who cannot remember the past are condemned to repeat it

Having had the time to study and learn from the Eircom privatisation experience, the current coalition’s response is to avoid learning from it and to continue repeating it.
     This may seem to be sheer stupidity and the antithesis of patriotism. But in reality the coalition is merely acting out its role as a minor player to the leaders of world capitalism. The Irish petit-bourgeoisie is subservient and is doomed to live off the scraps of international financial empire. When one of its number makes it to the big time it is hailed as a great day for Ireland—usually in the media owned or controlled by the new mogul.
     Nothing is said of the human cost of such “achievements” in terms of jobs lost, lives ruined, and resources plundered: instead tame economists, like Colm “Snip” McCarthy, are wheeled out to justify more privatisation as the public economy is readied for a further onslaught of private investment and exploitation.
     Now we are witnessing the arrival and bedding in of the American firm Blackstone Private Equity, one of the world’s major private equity companies. Blackstone and its rivals are regarded by independent critics as vulture funds. These firms and their funds pick over the valuable assets of distressed companies. As prices recover, they will flog these assets at enormous profits.
     In 2010 the chief executive officer of Blackstone, Stephen Schwarzman, told a Goldman Sachs seminar that the European debt crisis would present buying opportunities. For investing in distressed foreign markets he suggested that “you want to wait until there’s really blood in the streets.”
     Elsewhere Steve talked about deals where you can “double your money within a few months,” where returns on loan deals are 30 to 40 per cent, and mezzanine finance without risk is returning 13 per cent. And, in respect of Ireland, that NAMA “will start selling stuff at a clearing price.”
     And the Irish Bank Resolution Corporation (formerly Anglo-Irish Bank) has retained the services of the strategic advisory arm of the Blackstone Group to assess the €30 billion in loans it still has in Britain and Ireland.
     This caused alarm in some financial and political circles, given that the firm’s investment arm was one of several bidders for the IBRC’s American loan book last summer. At the time a spokesperson for the IBRC claimed that the company’s strategic advisory arm was “separate and independent” from its investment arm.
     Asked if Blackstone would now be precluded from bidding for any of IBRC’s British and Irish loan book in the future, given that its advisers were now engaged in an analysis and assessment of this portfolio, the spokesperson said: “The investment arm of Blackstone will not be precluded as a result of this appointment. The advisory side will be precluded from any role in any future.”
     Both Enda Kenny (who has had a private meeting with Schwarzman) and Michael Noonan go along with this analysis.
     From the Labour Party the silence is deafening.
     As Blackstone and the other vultures lick their lips at the sight of their rotting prey, we, the citizens of Ireland, can only grimace at our future prospects.
[MA]

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