Stroll around Wenceslas Square in Prague, and you'll see plenty of shops and restaurants, a few strip clubs, and Savarin Palace, the retail development at the heart of the latest dispute involving the National Asset Management Agency.

Savarin Palace is being sold for more than €80 million by Seán Mulryan’s Ballymore to help repay its debts to the agency, and ultimately to taxpayers.

The Irish Times revealed this week that Flow East, a Czech developer, has launched two lawsuits after it was excluded from bidding for Savarin by Ballymore. Mulryan's company has agreed to sell it instead to Crestyl, another Czech firm whose senior management includes a former Ballymore executive.

Flow East says it will pay the highest price and wants Nama to reopen the bidding process for Savarin. Nama says it is a matter for Ballymore. Ballymore says Flow East is a “sore loser” and was excluded because it lost its financial backer.

The row over Savarin is a morass of claim and counterclaim, which ultimately will have to be ruled upon by the Czech courts.

Criticism of Nama

In the meantime – and irritatingly for Nama – it draws further attention to the agency’s policy of allowing its developer clients to oversee the sale of their own assets to defray their debts to taxpayers. This leaves Nama open to criticism – rightly or wrongly – from disgruntled underbidders who may have complaints about the transparency of those sale processes.

Mulryan prepared a statement for the banking inquiry this week that effectively said Nama was being smeared by disappointed bidders in some deals to halt transactions. Sources familiar with the agency say that allowing debtors to sell their own assets for debt paydown is standard banking practice.

Nama did not comment but it did point out it has detailed policies and guidelines for debtor-run sell-offs.

How has the agency been dragged into this latest row?

Nama’s client Ballymore and Crestyl signed contracts for the sale of Savarin Palace on June 30th for a final price thought to be in the region of €83 million.

The property scheme comprises six separate buildings around the square, including the baroque palace building, which are to be linked together into a four-storey upmarket mall centred around an old riding stables.

Flow East, founded by Prague-based English businessman James Woolf, was immediately attracted to the asset when Ballymore first put it on the market last year. It says it specialises in restoring historic buildings and has worked on many such projects in the Wenceslas Square area.

Woolf would also have been known previously to Mulryan’s company, having threatened to sue the developer a decade earlier in a row over a Prague department store deal he co-owned with another Irish investor.

The Savarin sale process kicked off in the autumn. Flow East signed a non-disclosure agreement in October and received an information pack the following month. It was to be backed in its bid by private equity firm HIG Capital.

Flow East claims it entered into a legally binding agreement in January with Ballymore to hold exclusive talks until the end of April over a bid of €81.5 million, with a view to increasing the price further.

The validity or otherwise of this alleged legal agreement will be ruled upon by the Czech courts, but it is obvious from correspondence at the time that Ballymore did not consider itself bound by any such agreement.

According to a letter written by Woolf to a consultant overseeing the sale, a Ballymore executive allegedly telephoned HIG shortly before second-round bids were due. “[He] effectively asked them not to participate in the bid with us,” alleges Woolf. Ballymore has not commented on the allegation.

Either way, HIG withdrew its backing for Flow East’s bid, and the Czech group was excluded from the tender process because it allegedly could not fulfil the financing requirements. It is understood Flow East has since brought on board a new financial backer, but it has been unable to re-enter the bidding process, despite two lawsuits and an extensive letter-writing campaign to Nama and Ballymore and its advisers claiming it will pay a higher price than Crestyl.

Hands-off approach

The agency denies that the Savarin sale is its responsibility and says that it remains a matter for Ballymore, the owner of the assets. Nama just wants the proceeds.

“Nama is a stranger to your dealings with Ballymore and we are not therefore in a position to respond to your complaints against it,” said the agency earlier this month in a letter to Flow East.

“If you should commence proceedings in Ireland against Nama, we will vigorously defend them,” it said.

Woolf quickly wrote back to Nama: “It is pertinent to ask whether Nama will sell its loan to the highest bidder? As we have repeated many times, we are willing to pay a price higher than the winning bidder.”

Nama seems unlikely to waver. The next move could come in the chess game of court, when Flow East will take on Ballymore and Nama.