The Macquarie Connection
**** Updated January 12th,2011
While not evident in researching this post, it has been brought to my attention that Macquaries interest in the Casino was reduced in a debt reduction transaction that took place in August of last year, which received very little press. The majority ownership now belongs to Catalyst Capital, a toronto based investment firm, which was , in layman’s terms,an exchange of payment of debt for shares. Macquaries investment was reduced to approximately 2%.I do research my stories to the best of my ability,and had confirmed the below information with not one, but two source’s. However, since New World Gaming is still listed as an owner, the minimal portion of that nature was not widely known. The fact remains that Macquarie did own the casinos until just a few months ago, and one wonders why, if there is so much debt accumulation in these casinos- this transaction was a cash injection, Catalyst was a major creditor and this was a debt paydown- why the casinos are still operating ? Why keep a money pit open?
Those of you who have been readers for a while may have picked up on a couple of emerging themes over the last year. One surrounds the indepth features on some of BC’s P3 projects, and the other swirls around the Macquarie group of companies. You will know by now that Macquarie has had a big interest in British Columbia for several years now, seemingly since the Liberals came into power and began the process of really pushing P3’s as the best model of building new infrastructure province wide.
To be certain, Macquarie, through a number of its fund and subsidiaries, has a hand in a number of projects, and until later last year had been quietly making money off of another venture that has most recently attracted attention of the press, yet again, for money laundering and organized crime – gaming, specifically casinos.
In 2007, Macquarie Group Ltd. entered into a joint venture partnership with Crown Ltd. to buy out Gateway Casinos, through the new company named New World Gaming Partners Ltd. The acquisition meant that they now owned the Grand Villa Casino in Burnaby,the Starlight Casino in New Westminster, Cascades Casino in Langely, Lake City casinos in the Okanogan, and two casinos in Edmonton.
It is interesting to note that even though Macquarie is not a majority shareholder, that when I went to the Gateway casinos main website, there is a lot of nothing to read. Want to know about the company, its history ? Nope, under construction. Want to know about past press? Nothing, again under construction.
Some of the suspected money laundering incidents reported occurred at one of this companies properties, the Starlight Casino in New Westminster. To be certain, in the media reports it is always BCLC that is mentioned, but I find it interesting that none of the former or current casino owners appear to have been interviewed, since this excerpt from the CBC story shows it is hard to get the casinos to operate within regulations:
According to Ed Rampone, who was B.C.’s manager of casino investigations until 2009, gangsters can use casinos using so-called loan sharks — people who make high-interest, short-term private loans and will resort to violence to collect debts.
Rampone says gangsters lend large amounts of cash, mostly in $20 bills, to loan sharks. The loan sharks then act as middlemen, lending to high-stakes gamblers.
The gamblers typically repay the loans in the form of casino chips.
The gangsters cash them in and the money then appears to come from casino winnings, not illegal activities.
The practice is becoming more prevalent, said Rampone, who added that it was “an uphill battle” getting casinos to co-operate with regulations.
“I would agree that things have gotten worse,” he told CBC News. “There definitely has to be a willingness to stop it and much, much more participation from all the stakeholders in the industry.”
Since Maquarie seems to be divesting itself of investments on a global scale, I am hoping we may be soon to see the last of Macquarie in this province, with their recent sale of the 100% stake they had in the Sea to Sky highway. Business has been bad for them overseas, as their model of financing has proven worldwide to be inadequate and risky at best. Enron style number manipulations and skewed calculations leave projects and governments at risk when things appear to be better than they actually are.
No one knows why Macquarie sold that stake in the Sea to Sky, but I find it interesting to note that entire transaction fed a lot of money into BC from Macquarie investments and holdings… and they just made a tidy little profit and left.
I’m far from being the first to question this companies methods and holdings. Macquarie’s worldwide holdings include many, many offshore companies. Blog Borg Collective posted a list of their holdings worldwide, and it is substantial, although it is likely to read differently now.
“ Who’s afraid of Macquarie Bank? – The story of the Millionaires Factory” is an eye-opening article into the company that has taken such an interest in BC while the Liberals have been in power.
Macquarie developed a taste for and an aptitude in handling big infrastructure assets, while its executive director, Nicholas Moore, also identified a secular shift. Governments were not just stinting on infrastructure but exiting what they had: there was money to be made in the shift of public-sector assets into private hands, and in the provision of amenities and facilities on behalf of the state. Over the last decade, this initial jeu d’esprit has evolved into the ‘Macquarie Model’: the closest thing in Australian finance to a perpetual-motion machine.
The ‘Macquarie Model’ is begun when the bank buys all or part of a business, whether it be road or bridge, airport or utility. After a period of ingestion, the investment is passed on to one or more of its specialist funds, crystallising a profit, usually modest. But these funds not only pay Macquarie for management; they also pay fees for advice, underwriting and refinancing, as well as bonuses for outperformance of market indicators. In conjunction with rapid growth, Macquarie’s fee structure sometimes produces bizarre excesses: in the three years from June 2002, for example, the rake-off from the Macquarie Infrastructure Group was 54% of cash flow.
In theory, it would be possible for investors to find a cheaper manager. In practice, to unseat Macquarie from one of its funds is almost as inconceivable as Westfield Holdings being booted out of Westfield Trust. So it goes – and when you are clipping per cents off $131 billion of infrastructure assets, there is soon plenty to go round. As Scoop Jackson observed, “A billion here, a billion there, and pretty soon you’re talking about real money.”
Of course, we – and that includes the premier, and the auditor general – know now that the Macquarie Model of financing is the worst thing a government can get into, via P3’s or IPP’s. My colleague Erik Anderson and I have chatted about this, and the best thing you can read to understand how bad this companies methods are , is to read this article, titles Macquarie model blowtorched.
New York- based corporate governance service RiskMetrics Group has delivered a stinging rebuke to Australia’s infrastructure sector , and in particular the “Macquarie Model” which has been mimicked by Babcock & Brown, and has spawned a generation of toll-roads, airports, telecommunications and power generation stocks.”
“In the most detailed independent research of Macquarie’s Group and Babcock satellites to be published, RiskMetrics critiques the financially engineered infrastructure model for its high debt levels, high fees, paying distributions out of capital rather than cashflow, overpaying for assets, related-part transactions, booking profits from revaluations, poor disclosure, myriad conflicts of interest, auditor conflicts and other poor corporate governance.”
“Although the report has not put a figure on it, fees in the billions above normal public-private partnership (PPP) rates of return have gone to the investment banks.”
But back to the Millionaires Factory…. Another excerpt to make you wonder why our government likes to do so much business with companies like these…
The risks attached to Macquarie aren’t only financial. It is not just another big company making a tonne of money; it is a company increasingly standing in for the state, and not just in Australia. Two of its biggest recent purchases have been British assets of the most public kind: the venerable utility Thames Water, acquired by a Macquarie-led syndicate last October for £8 billion, and the emergency-services communications network Airwave, for which £1.9 billion was paid in April. Thames looks like the bank’s gamest bet yet: massively profitable, but with pipes so decrepit that almost a third of the water that flows through them seeps into the ground. London’s mayor, Ken Livingstone, has derided it as “the unacceptable, unsustainable and irresponsible face of privatisation”.
In the public eye, Macquarie can look squeamish. Stan Correy from Background Briefing describes attending a financial industry conference to hear Nicholas Moore speak. When Moore heard that the ABC was present, he demanded that recording equipment be switched off. “I was just reading that Macquarie is investing in regional newspapers in the US,” Correy says. “Which has got to be ironic, considering they absolutely hate journalists writing anything about them.”
Its reputation, moreover, is for being prickly, even hostile, when criticised. When Business Review Weekly was preparing a cover story on Macquarie three years ago, the bank started issuing complaints to the magazine’s proprietor, John Fairfax Group, even before publication. Two years ago, transport academic Dr John Goldberg published a paper casting doubt on the viability of the M2 Motorway and the Lane Cove and Cross City tunnels; the bank not only complained to the University of Sydney, where he was an honorary associate, but demanded the university disassociate itself from his comments. Whatever the rights and wrongs of Goldberg’s critique, it seemed needlessly heavy-handed. Likewise the response to the Wilson HTM analyst Brett Le Mesurier, who was told recently that he was being denied access to management because he had the temerity to write a note to clients comparing Macquarie to its smaller rival Babcock & Brown. “Of course,” says the puckish Le Mesurier, “that just encourages me.”
An investment bank undertaking roles previously performed by government is anything but a like-for-like swap. A government is elected on the basis of what it may giveth; an investment bank is chiefly interested in what it can taketh away.
Considering that last statement, there is no doubt our government’s ideologies are badly skewed, when they continually encourage and promote business investments that will ultimately not only bankrupt our province, but our citizens of faith and trust in the process.
Question the Macquarie connections when you see them, past or present, not only for what they represent, but for what that connection means for the future of our province.