Home' Trinidad and Tobago Guardian : January 29th 2015 Contents JANUARY 2015 • WEEK FIVE www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG3
Chief editor-business: ANTHONY WILSON
Editing and design: NATASHA SAIDWAN
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In response to my commentary on
Sunday last, headlined "Is NGC
approach in investors?' a correspon-
dent, in a private exchange of emails,
stated: "I do not believe in distributing
government assets at discount prices
to make some people rich."
The correspondent was arguing against the
opinion expressed in this space on Sunday
that if National Gas Company were to sell
shares in Phoenix Park Gas Processors at $20,
which is a discount of 20 per cent of the
reported selling price of $25 a share, "there is
a good chance that even if Phoenix Park's
product prices are low at this point that the
IPO would be oversubscribed."
The point was made that if NGC priced
75.2 million shares at $25 a share---which would
raise $1.88 million, the price it paid for the
stake ---there is a good chance that the IPO
would be undersubscribed.
It was suggested that if NGC and the Gov-
ernment, which owns 100 per cent of NGC,
were to sell 75.2 million shares to the public
at $20 a share, there would be a good chance
that even if Phoenix Park's product prices are
low at this point that the IPO would be over-
In other words, if NGC sells 75 million shares
at $20 at IPO, it earns $1.5 billion at the IPO
but if those shares then go to $36, NGC's
remaining shares (about 225 million) would
be worth $8.1 billion ($225X$36). But if the
IPO starts at $25 (raising $1.88 billion) and
declines to $22 a year later, NGC's remaining
stake would be worth $4.95 billion (225X$22).
In other words, if the Phoenix Park shares
are sold at a discount, it will make EVERYONE
who participates in the IPO richer (including
people's organisations like the UTC and NIB).
But if the market for the shares determines
that the IPO discount is not enough, it would
be less successful and those who participate
in it may see a diminution of their wealth.
That is in no one's interest.
This view of the pricing of the IPO is based
on the real life experience of pricing the First
Citizens IPO. The Government could have
priced that at between $26 and $28 but chose
to sell the shares to T&T individuals and insti-
tutions at a discounted price of $22 and look
The point needs to be made that, as was
clear from the First Citizens example, an over-
subscribed IPO is likely to lead to a sharp
increase in the share price in the secondary
market. First Citizens closed last week at
$36.48, which means that the share price is
66 per cent higher than the IPO price. This
means that the value of the State's remaining
stake in the bank (which is about 80 per cent
stake) would be worth 66 per cent more than
at the IPO.
As far as I am aware, the stated purpose of
this Government's divestment programme is
to distribute the nation's wealth to the widest
possible cross section of people.
Therefore if local individuals and institutions
make a profit on Phoenix Park, each of those
individuals and institutions is wealthier and
the VALUE of NGC's remaining shares would
If NGC sells at $25 and the share price goes
down after the IPO, the wealth effect of the
IPO for individuals and institutions would be
absent.This would defeat the stated purpose
of IPOs in T&T.
By selling the block of shares to local indi-
viduals and institutions at $1.5 billion, which
is $388 million less than the price it paid for
the shares, NGC would be fulfilling the GORTT
mandate of ensuring the widest possible par-
ticipation in a wealth-generating asset and
securing its own long-term financial interest
by increasing the value of its remaining Phoenix
By NGC leaving $388 million on the table,
the 100 per cent state-owned company would
also be contributing to a dampening of infla-
tionary impulses and capital flight.
Yet, in the context of the unresolved issues
with regard to the First Citizens IPO, there is
a legitimate concern that there would be people
who take advantage of their connections to
"game" the system and enjoy undue enrich-
The challenge, therefore, is how does the
Divestment Secretariat---or whatever is the
name of the division in the Ministry of Finance
that is headed by Gerry Hospedales---structure
the Phoenix Park IPO to minimise the pos-
sibility of undue enrichment?
One obvious suggestion is to limit ALL
applications individuals and employees to the
same number of shares once the overall sub-
scription of shares in those categories at the
IPO exceeds the number of shares offered. In
other words, if individuals and employees are
offered 40 per cent of the 75.2 million shares
(about 30 million shares) and they apply for
60 million shares, all individuals and employees
are capped at, for example, 5,000 shares. This
has the advantage of forcing all individuals
and employees who are not satisfied with the
number of shares they received at the IPO
onto the secondary market.
Might this cause some individuals and
employees to rush to establish new companies,
or use established companies to circumvent
That is quite possible. But that would simply
mean extra scrutiny on companies.
Does we need an ETF for IPOs?
Another way in which the issue of over-
subscription and possible undue unrichment
can be addressed is if an institution such as
the NIB, the UTC or National Enterprises Ltd
(NEL) were to establish an exchange-traded
fund (ETF) for privatization IPOs.
An ETF is a collective investment scheme
that is traded on stock markets and has the
advantage over mutual funds of being extreme-
ly lower cost.
The establishment of an ETF for Govern-
ment IPOs may even be an opportunity for
NIB, UTC and NEL to establish an ETF joint-
ly---as they did with their acquisition of the
10 per cent stake in Phoenix Park from GE
Capital last November.
If the NIB receives a 10 per cent stake in
the Phoenix Park holding company at the IPO,
it could make some of those shares available
to the ETF. Likewise with regard to the shares
offered to the UTC and NEL.
The establishment of an ETF for Govern-
ment IPOs would ensure that a percentage of
the excess demand for First Citizens shares
does not get pushed back into deposit accounts
or income funds.
The setting up of such an ETF would also
be a possible investment vehicle for oppor-
tunities that are likely to present themselves
in the future.
This would include:
• The T&T Mortgage Bank, as a result of
the merger of the Home Mortgage Bank and
the T&T Mortgage Finance, is scheduled to
follow the Phoenix Park IPO;
• NGC is also negotiating to acquire the
interest of French energy giant Total in T&T
for between US$400 million and US$500 mil-
lion. Total has a 30 per cent stake in Block 2
(C), which is being operated by BHP Billiton
and which has a third partner in the Chinese
energy giant Sinopec; Total also has an 8.5
per cent stake in Block 3 (A). The other partners
are: BHP Billiton with 25.5 per cent, Sinopec
with 25.5 per cent; Anadarko with 25.5 per
cent and Petrotrin with 15 per cent.
• It is understood that the new owners of
MHTL are interested in selling down their 100
per cent stake in the company to the NIB,
UTC and NEL. Establishing an ETF may be
an inexpensive way for individuals to invest
in the methanol market.
Is sharing State wealth a bad thing?
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