The 55 million euro high security, high value storage facility formerly known as the Luxembourg Freeport – now known officially as the High Security Hub (HSH) – was back in the headlines recently as auditor BDO Audit drew attention to what it termed “significant uncertainties” about the firm’s ability to continue its business activities “on a going concern basis,” in its corporate audit report of HSH’s balance sheets, filed to the Luxembourg Business Register in mid-July.
The audit report paints a picture of a company at risk, with a 2021 operating loss of 362,000 euros and being subject to having its over 20 million euros in bank construction loans being called in by its bank lenders at any time. According to media reports, the company has never turned a profit.
The BDO report points to major disagreements with the HSH during the audit, with BDO reporting that HSH presented them with insufficient audit evidence to enable the auditors to reach a conclusion on two significant HSH claims in its annual report.
Lack of audit evidence
First, HSH claimed but couldn’t prove to the auditor’s satisfaction that a valuation adjustment on its financial fixed assets, which it asserted as 22.6 million euros, was temporary. Second, HSH claimed but couldn’t convince BDO that it was likely to recover certain amounts owed that would allow it to value its receivables at 12.9 million euros.
The Freeport warehouse was built in 2012 on state-owned land to act as a bonded warehouse for high-value goods such as paintings, diamond or precious wines. According to the audit report, under an April 2013 loan agreement, In 2021, Freeport was 26.2 million euros in debt to the BIL, BCEE, Banque de Luxembourg and Banque Raiffeisen banks, who had loaned the money to build the 22,000 square metre warehouse.
An amount of over 1.7 million euros is due to the banks within a year of the audit report.
In violation of loan contract
The BDO report points out that the financial ratios underlying the four banks’ construction loan “are not respected”. It notes that “the banks have not formally acted on the waiver to request the early repayment of the debt, as provided for by the loan contract in the event of non-compliance with these financial ratios.” The auditors are clearly presenting the banks’ failure so far to call in their loans as a risk to company’s ability to continue its operations.
The 2013 loan agreement gave various securities to the banks involved, including a “mortgage in the first rank” on the building and the land it occupies. However, it’s questionable how much of a market there is for a huge, highly-specialised, four-story temperature and humidity controlled high-security warehouse.
Unanswered parliamentary question
The former Freeport has been the subject of regular parliamentary questions. CSV parliamentarian Laurent Mosar asked about the amount of tax revenue generated by the Freeport’s activities and the government’s assessment of whether the Freeport functioning properly. He also asked further details about freezing of 210 million in assets held at the Freeport because of the EU sanctions against Russia for its unprovoked invasion of Ukraine.
This freeze was announced by Finance Minister Yuriko Backes in her reply to an earlier parliamentary question filed by Green Party parliamentarian François Benoy.
Mosar is still awaiting a reply from either Backes or Mobility and Public Works François Bausch, who have passed the parliamentary deadline for their replies.
The Luxembourg Freeport builder and still its majority owner is Swiss businessman Yves Bouvier. Through his company Natural LeCoultre, Bouvier became involved with the storage of art, antiques and other luxury goods, and founded bonded warehouses for this purpose in Geneva, Singapore and Luxembourg.
Freeport missing critical component
According to recent report in the Wort, part of the original plan for the Freeport included an important project – setting up an art exchange. Without an art exchange, it’s said, a bonded warehouse made little sense.
According the various Luxembourg press reports, Bouvier became involved in an epic legal battle with Russian oligarch, Dmitri Rybolovlev. Rybolovlev had Bouvier arrested in Monaco on suspicion of fraud and money laundering, accusing Bouvier of defrauding him out of 1 billion euros in commission on art sales.
Bouvier was eventually acquitted in nine trials in Singapore, Hong Kong, New York and Monaco. He is now back on the board of directors of the High Security Hub, in which he holds a 68% interest.