Spying case in Luxembourg: cherchez la femme

My Orchids: Listening Devices in the Shadows. Photo ET

Spying case in Luxembourg: cherchez la femme

The President of the Eurogroup, who now is a serious candidate for Prime Minister of the Grand Duchy of Luxembourg, a job that has been vacant for several years, recently spent a few hours in Luxembourg for a first training session for his future job. The candidate preferred a "freestyle" test for the first practical session, choosing as a topic an issue initiated by himself two weeks ago: a spying matter where facts and fictions are jean-claudying into one another. But the intent in choosing that subject was really a deception. It was "head fake" designed to hide the lingering fiasco at Cargolux and the true emergency that's the need for its rescue. The feint was also to obscure the real problems and suspicions surrounding the Cargolux case, as well as similar situations in other recent cases. There will even be an Inquiry Commission to investigate the spying nebula, but there won't be any such commission for the economically more serious and more immediate problems and questions surrounding Cargolux, even less for the little older case of the National Stadium at Livange.

Attention! One feint may hide another.

Indeed, my "cherchez la femme" was a double feint, a pretext to attract the reader. You have to admit that it was successful, as you made it up to here. My intent was to break the spell of the spy story and bring you back to the urgent realities. If you thought I would make some juicy revelations about Bond girls, that's not yet. The spy story is a political fiction, but if it is going to keep a life by itself, it needs girls anyway, and we'll eventually find one. So keep posted.

My real goal is to refocus attention on the serious urgency of the moment, the fire in the country's economic bulk of the roof, and the heat Cargolux is taking. Without forgetting to have the Great State Commissioners account for the disaster they commissioned.

Cargolux: let's take the same and start all over again.

Cargolux' catarrh due to the cooling of the relations with Qatar needs to be taken to the emergency room.. A second opinion is needed. But are we seeking a second opinion from the same old doctors who formerly prescribed QR? This is apparently what happens. Ministers Frieden and Wiseler briefed Parliament about their new approach, a treatment in two phases. Though there is no diagnosis yet. But everyone seems reassured. For the moment, the patient does not respond at all, because its decision-making organs are blocked due to the continued participation of QR, still a shareholder.

The two ministers said the first phase would be a maneuver that would release the 35% of shares held by QR into an escrow. Nothing to do with the one provided by ING in 2011 for the sale of CV shares to QR. This time  the ministers insist, it will be "clean and correct." I read those comments reported by the press as an admission that in 2011 the occult escrow operation with ING might not have been clean or correct? But let's for the moment just acknowledge that we have a temporary solution, even if it is born out of this obsession with confidential escrow agreements.

The devil is in the details.

The good news of the redemption of QR shares is good news only if Qatar is actually aware of this, and  is okay with it. There were at least three ways to proceed with the redemption of QR's shares. But a choice has already been made. So here we are with the fait accompli of option three, which is a hybrid between the other two possible redemption methods: a direct sale a or sale to a third party.

As our ministers did not elaborate on the details, we should remember that generally the devil is in the details. In this escrow operation, what are the terms? I guess that QR remains the beneficial owner pending a final sale. In the meantime, does CV have operational freedom? That's essential, without saying that no other clauses detailing the expectations on both sides are not important to avoid procrastination and last-minute surprises when a "closing"  should happen. I'm afraid that none of this is certain by just remembering the previous agreements signed by our ministers, agreements that were completely unbalanced in favor of QR. Did we protect ourselves this time? We are assured and like to believe that transparency will prevail, and certainly will transcend past Luxembourg amateurism. At least this time around, well advised witnesses will be able to watch and make noise, enough to protect the naive from themselves.

However, the negative results of  past amateurism and the incomprehensible deal of 2011 are: CV's present value lies below its real market value, QR cannibalized  CV, and ultimately CV lost some of its excellent reputation. This accumulation of bad news will haunt the current recovery. In addition the turn-around effort is handed over to the losers of the first round, without even asking for any accountability for the first fiasco they created.

The devil will be especially present in the crucial detail of anew valuation for CV, after it underwent two horrible years of damage. This will be a large gap to bridge between buyers and sellers, unless the sellers go again for the lowest bidder. Before choosing the solution of acquiring QR's shares in escrow, there could have been more than a half-dozen ways to pluck this duck. But now there are fewer choices left. We will watch the skills of our negotiators, who in the first transaction had sold to the lowest bidder (!).

By now the range for a valuation of 35% of CV lies somewhere from under the$ 117.5 million paid by QR (after considering incurred damages) to over $ 175 million (HNA's opening bid in 2011). This will be tough, but CV is intrinsically beautiful, with a worldwide tradition. The government cannot and shouldn't avoid providing strong guarantees and even intermediary direct investments to enhance CV's credibility. Mere formality one might think: the government has done so in much higher ratios for banks. What is good for the goose is good for the gander.

What comes first, a partnership or recapitalization?

The Qatari partnership was a mere ownership transaction, without any capital contribution. Hopefully our sorcerer's apprentices never mistook that partnership for a capital contribution. It is clear that the deal served the purpose of allowing the private investors BIP and Luxavantage to exit Cargolux. The result is that in its quest for new capital, CV lost two years. After a surge in revenues in 2010 producing profits, the bleeding resumed as the QR relationship developed..

The reality is that a partnership does not exclude a capital injection, as shown in HNA's offer for a partnership in 2011. Its bid was not only higher than QR's. It was accompanied by a loan of $ 200 million at quite favorable conditions well.  Luxembourg's State corporatism, i.e. bureaucratic decision makers, showed contempt for the Chinese equation that didn't satisfy who knows what needs. Yet among the senior professional staff at CV, there must remain enough collective memory to revive the former vision, positivity, certainty, boldness, it's "You name it, we fly it" mentality, and who could tie up with their former selves and make the company great again.

Actually the new guard at the helm is typical for state corporatism in Luxembourg. Here you have Cargolux, created over 40 years ago. Viewed with skepticism at first, it proved a surprising success. And presto, the Luxembourg "system" snapped it up and put its faithful servants of state corporatism in command, who, incompetent, must turn to partners, consultants, uncles, meandering mechanisms and other hesitation waltzes, thus hiding their inability to understand the problems and to make timely decisions. The State for its part would justify its lack of action and transparency on the grounds that it cannot interfere in the affairs of a "private" company, that it actually owns. This is the sad state of state corporatism.

With the new transparency policies, we will all be at the forefront to follow the future exploits of our ping-pong duo Frieden-Wiseler. (Ping-pong does not infer any bias in favor of any partner). We already know that the public will pay attention and not be silent. What's more, our aspiring Prime Minister promised a Code of Conduct before the end of this year, which would of course apply to the main actors in our drama! I would even add an Inquiry Commission about the former QR deal, because what good is a small code of ethics, if the big questions about the legality of our officials' past actions are not to be investigated?