Fishy Sale and Leaseback

The Malta Independent   

   

Sale and leaseback is rather last resort type of financing where banks feel that as part of a financial rescue operation they have to take some additional risk but try to cover their back-side as best as they could from the security aspect.

 

Borrowers passing from liquidity squeeze but cannot meet normal criteria for bank facility could as part of a last resort rescue package sell their investment assets to the bank to raise sufficient liquidity.   Then they would enter into a lease agreement to enable them to continue using the asset that is indispensable for operating purposes.  

“the fisheries territorial agreement reached with the EU bears resemblance to a sale and leaseback agreement with all the burdens but without the benefits.“

A corporation could sell its head office and showroom buildings to the bank or financial institution and lease same back on a long-term basis to continue functioning as hitherto.    In the process the corporation gets an injection of liquidity essential for its survival and can work its way back to profitability that would hopefully support the higher operating lease charge incurred annually.   Often there is a repurchase option at a predetermined price in favour of the borrower at the end of the lease.

 

I have no intention of dedicating this column to abstract notions of corporate finance.   But the fisheries territorial agreement reached with the EU bears resemblance to a sale and leaseback agreement with all the burdens but without the benefits.

 

We have ceded to the EU our sovereignty over the outer 13 miles of the current 25 mile fishing limit over which we exercise exclusive fishing rights.    No cash injection or similar benefits of the sort are involved.   Just handing on a silver platter a substantial part of the national territory which, small enough as it is, is now destined to become smaller!

 

Then we lease the same territory back so that we use it as a conservation zone for the new owner.   We pay an operational lease price for doing so i.e. for using our own territory which is being ceded without compensating value.    This operational lease is in the form of having to allow EU fisherman with boats up to 12 metres to fish freely within this outer 13 mile radius and in four particular cases we are also allowing them to fish without restriction of size.

“The acquis communitaire was not designed for a small island periphery state”

 

At the same time our own boats larger than 24 metres cannot fish in this outer 13 mile radius and will have to fish exclusively in international waters in full competition with fishermen of other EU countries who are much better equipped.

 

Indeed this pitiful result was quite predictable.   I have repeatedly said it that the EU would grant us all concessions and derogations we ask for provided (and this is a big proviso) that they do not cause them problems of precedent.

 

And the fishy sale and leaseback agreement we have landed is exactly a warped and dirty arrangement meant to allow us as much of what we asked for without causing problems of precedent for the EU.   And similar dirty sale and leaseback deals have occurred in other areas where we cede for no value what we already have  and then incur operational cost to lease back part of what was conceded for free.

 

And don’t blame the EU or our negotiators for this.   Just those who are trying to fit a square peg in a round hole.  The acquis communitaire was not designed for a small island periphery state.   Making it to fit inevitably loads us with many sale and leaseback foul deals which to add insult to injury are being hailed as achievements