Ben Chu: Warning - state-subsidised asset stripping is a severe choking hazard

Did the private-equity house, OpCapita, really intend to turn Comet around

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The Independent Online

Outlook The company "values" listed on the OpCapita website include "dedication", "creativity", "integrity" and "respect". Heartwarming stuff. No mention of "transparency" though. The website lists no contact phone numbers. The last "news" was in August. There's a solitary, anonymous, email address. Given the storm whipped up by the private-equity house this week that all feels pretty unsatisfactory.

The venerable electrical retailer Comet, in which OpCapita had a controlling stake through a vehicle called Hailey Acquisitions Limited, has gone bust, putting 6,900 people out of work. We discovered this week that the collapse has also left a £50m bill for the taxpayer.

Comet owes £26m in VAT. The taxman can now whistle for it. The Government will also have to fork out £24m for Comet staff redundancies through the Redundancy Payments Service, which pays staff whose employers go bust without enough cash to fulfil their obligations.

For OpCapita, though, there was better news. As a secured creditor of Comet it will receive around £50m from the proceeds of flogging the chain's assets – all those unsold stocks of TVs and washing machines. In theory Comet's secured creditors are owed £145m, implying that OpCapita is nursing a £95m loss. Yet the administrator, Deloitte, provided no breakdown of those loans, or who put them in.

It is known that OpCapita received a £50m "dowry" from Kesa, Comet's previous Anglo-French owners, who offloaded the retailer to the private-equity firm in November 2011 for a nominal £2. But no one knows whether that dowry was actually invested in Comet by OpCapita. Another theory doing the rounds is that OpCapita simply took on the existing intra-company loans to Comet from Kesa, rather than putting any of its own cash in.

We do know that money came out. The Deloitte administration document shows that OpCapita extracted £12.8m in various fees from Comet over the past nine months. Plus OpCapita still owns the Comet warranties business (which insures the purchases made by the chain's customers). That enterprise is still making money. Put all this together and it is perfectly possible that OpCapita came out ahead from the retailer's implosion.

So did OpCapita really intend to turn Comet around? Or was this a disguised exercise in asset stripping? Kesa, since renamed Darty, insists it sold Comet as a going concern, and points out that OpCapita was the only bidder for the chain last year which proposed to keep it alive. Others claim the fact OpCapita brought in some respected industry figures, such as John Clare from Dixons, shows it was serious about reviving Comet's fortunes and that the private-equity firm did not merely intend to feed off the carcase.

Perhaps. But the lack of transparency surrounding the messy demise of Comet means we cannot be sure. OpCapita certainly aggressively protected its own potential downside, according to one accountant involved in the liquidation I spoke to. If the November 2011 takeover deal had not been carefully structured in the manner it was, the liquidated assets would probably have paid for the staff redundancies.

There's some history. The American head of OpCapita, Henry Jackson, was involved with the furniture retailer MFI, which went under in 2008. He said at the time: "We protect ourselves and our investors by structuring the transaction in a way that we are extremely unlikely to lose money." The Business Secretary, Vince Cable, announced an inquiry into Comet's fall. That was sensible. Asset stripping is hard to swallow at the best of times. But when it comes with a de facto government subsidy there is a severe choking hazard. We need to get to the bottom of this. And we need to consider whether there is a case for requiring "white knights" and self-styled turnaround specialists to inject equity, rather than debt, into target businesses, especially if the Government is going to pick up staff redundancy payments.

As for OpCapita, it needs to get a phone number. When private equity results in public liabilities, silence simply won't do.