Farmer Business Developments, which owns 24.6% of FBD Holdings, has been the hardest hit since FBD’s share price collapse and it is now expected that it will take the hit to bail out all investors, including institutional, to secure the future of FBD.

Developments investment, which was worth €162m in January 2014, has seen its value reduced to just €45m today – meaning a sum of more than €117m has been lost.

As exclusively reported two weeks ago in the Irish Farmers Journal, Farmer Business Developments this week confirmed that it has agreed to buy the remaining 50% stake in the hotels and leisure business (FBDPLL) from FBD Holdings for €48.5m.

The proceeds of this sale will be used to recapitalise the insurance company as it seeks to boost its reserves following its €96m half-year losses and its requirement to meet new Solvency II regulations.

This is despite the board of Holdings recommending in April to pay a final dividend for 2014 of €10m to all shareholders. This brought the total dividend paid for 2014 to €17m.

Is this a good investment for Developments?

Farmer Business Developments is, in effect, a holding company of investment assets. It has no employees. With this deal included, it has assets today worth €207m, similar to year end 2014, because of the share price collapse of its principle investment in FBD Holdings.

However, Developments will assume debt of €35m to take on this deal, meaning it will carry a total debt of €50m into the future.

If this deal is passed, it now has invested the equivalent of €110m in the hotel business over the last four years. This makes hotels its most important investment and accounts for just over 50% of the assets.

Meanwhile, its investment in FBD Holdings now makes up less than a quarter. This means that, after this deal goes through, what was once the founding father of an insurance company 40 years ago will have been transformed into a hotels and leisure business over the space of four years.

Farmer Business Developments has been performing OK, making a profit before tax in the region of €5-6m over the past two years. That would indicate a return of around 3% on its investments, principally made on the back of its FBD Holdings investment.

Its income comes in the form of a dividend from Holdings and this amounted to €4m in 2014, based on its 24.6% shareholding in the group. The main costs are directly related to the board’s remuneration, which amounted to €116,000 last year.

What exactly is the investment?

This is a hotels and property play and, looking back, FBD’s venture into the property development and hotel business has yielded mixed results, but it has improved in more recent times.

The hotels which employ almost 700 people improved in 2014, driven by growth in occupancy and rates. As a result, turnover increased 1.7% to €53.2m in 2014.

The business is split evenly between Ireland and Spain. Overall, the hotels made an operating profit of €4.8m. This would indicate an operating margin of 9%. However, after interest of €4m is paid, profit before tax was €2.2m, of which €1.4m related to the sales of lands at La Cala in Spain.

While, no doubt, some hotels are performing strong, some may not be returning a profit and the businesses ability to return a meaningful profit may be down to development land sales in La Cala in Spain. It has entered a JV with Taylor Wimpey, a UK development company, to develop these lands.

At year end 2014, the hotels business had bank loans of €39m. Following the sale of the Temple Bar Hotel for €28m, bank debt has been reduced to €14m.