Council Loses £1.8m With Essentially Valueless Shares

A £1.9m investment in the Bluestone holiday village, later converted to essentially valueless shares, lost the council some £1.8m, which will take 340 years to recoup.

The loss, following behind-closed-doors decisions made more than a decade ago by the council’s previous administration, was made public at the May 11 meeting of Pembrokeshire County Council by Cabinet Member for Corporate Finance Cllr Alec Cormack.

Members also heard this secretive decision had led to the loss of a guarantee members of the public rather than just Bluestone guests, would be able to access the Blue Lagoon waterpark.

Cllr Cormack made the shocking revelation in response to a submitted question by Councillor Alan Dennison.

Cllr Dennison had asked: “Given the council’s previous investment in Bluestone of a £1.9 million secured loan, now converted into shares, can the Cabinet member advise what return on investment per annum has been received over the last five years in share dividends or any other form of income?”

The £110m Bluestone eco-resort, near Narberth, opened in August 2008.

Early on, the county council invested two loans, adding to a total approaching £1.9m, the lion’s share in respect of Waterworld – now called the Blue Lagoon – with the key justification being there would be year-round public access for the public.

In 2009, it was reported that the county council took up an equity share option in the company behind the Bluestone holiday village, exchanging its loans for them.

Cllr Cormack – speaking via remote link as he had tested positive for Covid – answered Cllr Dennison’s question at the May 11 meeting.

“The council originally invested in Bluestone two loans; the key justification was Waterworld, now called Blue Lagoon – was to be an indoor venue accessible year-round for the general public of Pembrokeshire, and for a fair price.”

He said that investment was secured with a legal charge on land at the land registry.

In 2009 Bluestone, seeking additional investment, invited the council to exchange the loans for shares, which would have involved removing that legal charge over the land.

The council  declined that offer, but agreed it be considered at the next Cabinet meeting, Cllr Cormack told members.

By the time the Cabinet met, Bluestone had successfully refinanced, with about £10m of extra investment.

It was then that the behind-closed-doors decisions were made, removing the loans and the guarantees, members heard.

Cllr Cormack said the 2009 Cabinet report was confidential, so he couldn’t say what was in it, but said he could tell members “what was not in it,” saying there was no clear justification for taking up the shares or for giving up the legal charge guaranteeing the loans and no evaluation of the pros and cons, or evaluation of a fair share price.

Members heard the value of the shares amounted to – at best – under £70,000, and had paid out £19,000 in dividends over the last five years, with the highest dividend in a single year amounting to £5,250, in 2019-20.

“The council’s lost £1.8m of the £1.9m – roughly 95 per cent – of the IPPG investment and the public’s lost the guaranteed right to use the Bluestone pool,” said Cllr Cormack.

“At this rate, if we took that maximum dividend amount of £5,250, the council would get its money back in roughly 340 years.”

In a supplementary question, Cllr Dennison then asked: “What are your plans for these shares? Are you just going to continue?”

Cllr Cormack said previous conversations had taken place between the council’s director of resources and Bluestone’s finance director, with not much interest raised in purchasing them.

“Being a minority shareholder in a private company is a very weak position to be in, any attempt to sell shares would lead to a ‘minority share discount’,” he said.

A ‘minority share discount’ means shares that have little controlling power of a company due to the small percentage may be worth even less than their face value.

Cllr Cormack added: “It’s not clear to me that, A, we would be able to [sell], and, B, we would be able to raise a decent amount of money.”

In 2013, a management buy-out secured Pembrokeshire’s Bluestone National Park Resort in local ownership.