Profits from the NSW land titles registry may soon be heading to the Cayman Islands to be controlled by one of the world’s most notorious war profiteers, the Carlyle Group.

Or perhaps they may end up lurking in a mysterious vehicle controlled by a trustee in London. Of the four consortia which have been identified as bidders in the privatisation of the NSW Land & Property Information Office (LPI), all four have offshore associates.

Company searches show two entities behind the Carlyle Group’s bid, Elares Employee and Elares Finance are owned by another Carlyle company called Elares Partners which is in turn owned by Carlyle Global Infrastructure Opportunity Fund, based in the Cayman Islands. The Washington-based defence contractor and buy-out group has a long history of corruption allegations.

Land titles: the folly of privatising an essential monopoly

The Hastings Funds Management and First State Super syndicate is using a vehicle called Australian Registry Holdings which is owned by RBS Pension Trustee in London. Trustee for what? This may be an all-Australian bidding duo but what is hiding behind this British trustee?

Then there is the consortium of Link Land Registry Services which is owned by Link Administration, in turn owned by Link Administration Holdings. Link is an ASX-listed group but its rumoured partner (the NSW government is hosting a secret bidding process and the only information about the bidders has come from friendly newspaper leaks) is Macquarie Group entity Macquarie Infrastructure and Real Assets (MIRA).

MIRA, according to filings with the Australian Securities & Investments Commission, is domiciled in Sydney but according to the Macquarie annual report is domiciled in London. Macquarie is no Puritan on the tax front.

The final bidder is Aurora Holding 1 which is a 50/50 joint venture held by ASX-listed Computershare and two Canadian groups: BPC Penco VIII Corp and Borealis Services Inc. Borealis has been embroiled in criticism in Europe for avoiding tax on infrastructure assets in has acquired via privatisation.

In what is bound to be another farcical exercise in selling state profits and socialising state losses, bidders in the privatisation of the LPI will no doubt claim they will pay tax in Australia.

However, bidders for essential government services such as these typically gear them highly and siphon profits offshore via loans from their offshore associates. Carlyle for instance would likely structure with a big loan from another associate, perhaps in the Caymans, and the interest on that loan would go to Carlyle’s offshore associate before tax is paid.

Another point to be made about this privatisation is the price. Messaging from government via the press is that LPI will fetch $1 billion to $2 billion. It is a fair call that the mooted price may have been lowballed and that the government will get quite a bit more for LPI and then be in a position to boast what a good price is has achieved.

This is a high margin enterprise though, generating $130 million of profits on $190 million of revenue. Putting that on the average PE valuation of top ASX stocks and assuming aggressive leverage, stable revenue growth, costs to come out and tax structuring and the price might be closer to $2.5 billion.

The spectre of this asset going offshore and little coming back by way of tax will not be greeted well by the many critics of the privatisation. This is a very unpopular transaction already as it involves essential infrastructure. Costs of land transactions have already risen significantly in NSW and it is difficult to disentangle the part of the land titles operation being sold from the rest of the agency.

The NSW government has form in privatising assets to tax havens. As revealed here, the government sold half of its Transgrid electricity asset to entities in the Caymans.

NSW Power Sale Profits could end up in Cayman Islands