Tuesday, 5 July 2016

Infrastructure fund was 'bound to fail' before SBC signed up


A financial planning expert on the other side of the world concluded in 2011 that the offshore fund chosen to deliver a waste treatment facility for the Scottish Borders was "rubbish" and should not be marketed to investors.

Wilfred Ling, who runs his own professional financial planning practice in Singapore was approached to market the entity but realised the New Earth Recycling & Renewables Fund [NERR] would fail BEFORE Scottish Borders Council even finalised their £80 million contract with New Earth Solutions Group and their funders NERR.

The council ended up paying two firms of consultants more than £146,000 for financial advice while NERR and NES were given generous concessions of time after failing repeatedly to fund the £21 million Easter Langlee waste treatment plant.The abject failure of the scheme forced the council to tear up the contract and write off £2.4 million of taxpayers’ cash.

Last month joint provisional liquidators were appointed to the Isle of Man-based fund after New Earth Solutions plunged into administration with massive debts.

In a devastating article posted on his website Mr. Ling says he is already convinced that investors who between them staked tens of millions in NERR will get absolutely nothing back after the liquidation process.

But as Not Just Sheep & Rugby revealed recently, the directors of Premier Group (Isle of Man) who managed and promoted NERR collected £24 million in various types of fees between 2009 and 2014 while the Scottish Borders contract was active.

Mr.Ling writes: "The New Earth fund invests in recycling facilities in the United Kingdom. We at IFA - his company - gave it the nickname the 'Rubbish Fund'". After a marketing agent contacted him and asked if he would market the fund he asked for and was given a financial statement as at January 31 2010.

Did anyone involved in the Easter Langlee project take the trouble to obtain a similar financial resume before deciding New Earth Solutions should be awarded the massive contract rather than rival bidders Shanks?

Says Mr. Ling: "I was concerned it was not profitable. What was worst was that its cash flow from operation was negative. The entire operation was financed by borrowing and new investors' monies."

Anticipating that Mr Ling would raise concerns, the agent emailed him in the following terms: "NESG [New Earth Solutions Group] is not profitable by design and is concentrating on investing for the future. Very important; the fund performance does not depend on profitability at group level".

According to Mr. Ling he almost fainted when he read that the investment was not profitable by design. "It was for this reason that I was convinced the investment will fail". Since creditors had to be repaid before shareholders, shareholders eventually are not going to get anything once liabilities exceed assets of the business.

Last month Mr. Ling ran another financial check on the unregulated New Earth funds as the liquidation seemed to imply that investors may suffer 100% losses.

The New Earth Solutions Group Ltd accounts showed the business was insolvent. And its cash flow from operations is still in the red after four years.

New Earth Facilities Management Ltd is also insolvent, says Mr. Ling. It made a significant loss in 2015.

His article continues: "So it looks like it is true that investors are not going to get anything back and I can safely conclude that shareholders should get back £0. Strangely the factsheet as of March 2015 shows that the fund was valued at £1.685 per unit".

He concludes: "1 A fund can have positive NAV (net asset value) when the underlying investments are insolvent. This is probably true for unregulated funds like this one.

"2 This, like many other investments marketed to Accredited Investors, was a total disaster".

"3 The Rubbish Fund lived up to its name".

So how could Scottish Borders Council embark on such a disastrous course of action in 2011 when they concluded their shambolic deal with NES/NERR? Perhaps they should have engaged Mr. Ling as their financial adviser rather than the highly expensive UK-based consultants who obviously failed to establish the true status of "The Rubbish Fund".

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