Banks promised support if Esat won phone licence

THREE Irish banks that promised financial support if Denis O’Brien’s Esat Digifone won the country’s second mobile phone licence expressed their concern at the way financier Dermot Desmond came on board, the Moriarty Tribunal heard yesterday.

Kyran McLaughlin, then joint chief executive of J&E Davy Stockbrokers, said Mr O'Brien and fellow Esat Telecom director John Callaghan approached him in April 1995 seeking support from financial institutions for Digifone's licence bid.

He told them it would be difficult to generate support from institutional investors as the eventual financial terms of the licence were unknown and it would be difficult to put a precise financial proposal to potential investors.

Davy secured three prospective financial investors Allied Irish Bank, Investment Bank of Ireland and Standard Life (Ireland) who were prepared to invest £8.5 million (€10.79 million) on condition Digifone acquired the GSM2 licence on financial terms acceptable to them.

Ultimately, the banks' support wasn't required and Mr McLaughlin was informed on September 29 the day Mr Desmond's International Investments & Underwriting Ltd (IIU) signed an agreement to take up the equity available to financial institutions as well as to underwrite the total Irish investment of about 60%.

Asking Mr McLaughlin to get the three banks to step aside, Mr Callaghan explained the consortium had been advised the financial element of the bid was not sufficiently strong to allow Digifone to be awarded the licence.

He said Digifone was negotiating with a financial party that would provide stronger financial backing, but did not reveal the party's name.

On November 22, Mr McLaughlin wrote to Mr O'Brien asking why the financial institutions he had been asked to enlist were not asked to make a stronger financial commitment to Digifone, along the lines offered by IIU. He got no reply.

After he wrote again to Mr O'Brien, on July 4, 1996, Mr O'Brien and Mr Callaghan went to a meeting in Mr McLaughlin's office on August 8.

Among the queries put by Mr McLaughlin was why the three banks had been replaced by IIU, which was not as financially strong.

Mr O'Brien said they wanted a firm financial commitment and they knew no normal institution would give that commitment. However, IIU was prepared to do so.