Home' Trinidad and Tobago Guardian : June 4th 2015 Contents JUNE 2015 • WEEK ONE www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG3
Chief editor-business: ANTHONY WILSON
Editing and design: NATASHA SAIDWAN
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There have been several
comments on the state-
ment by President of the
National Gas Company,
Indar Maharaj, in this
space last week, that the
state-owned natural gas
intended to price the Initial Public Offering
(IPO) of shares in Phoenix Park Gas Processors
at below their cost price.
For those new to the story: in September
2013, NGC acquired the 39 per cent stake in
Phoenix Park held by US oil giant Cono-
coPhillips for US$600 million ($3.84 billion).
As part of the current administration's
divestment programme, around the middle of
last year, NGC proposed to sell 75,852,000
shares in the holding company named TTNGL
at $25 per share, representing a 49 per cent
stake in the company. That proposed IPO of
Phoenix Park shares would have raised $1.89
billion, which would have meant that NGC
would have recovered almost exactly what it
paid ConocoPhillips, given that it was only
selling 49 per cent.
In January, having done some research into
the Mont Belvieu prices of propane, butane
and natural gasoline (Phoenix Park's three
products), it struck me that NGC was setting
itself up for failed IPO if it opted to return to
the local stock market this year with a $25 per
share IPO price. And I expressed that view in
three consecutive commentaries in this space
starting with, "Will lower product prices affect
Phoenix Park IPO," on January 22, continuing
with, "Is NGC approach in investors' interest
on January 25, and, "Is sharing state wealth
a bad thing? on January 29.
The premise of my three January contri-
butions was that T&T's institutional and indi-
vidual investors would have little appetite for
the Phoenix Park shares if NGC and its owner,
Corporation Sole, offered 75.85 million shares
for sale at $25.
But there would be significant appetite if
those shares were sold at a price that was
more reflective of the decline in Phoenix Park's
In the January 29 piece, I wrote: "...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.
"But if the IPO starts at $25 (raising $1.89
billion) and declines to $22 a year later, NGC's
remaining stake would be worth $4.85 bil-
In the January 22 edition, the views of the
NGC president and the Minister of Finance,
Larry Howai, were sought and reported faith-
In January, both men, by their statements,
suggested that there would be no deviation
from the $25 per share price aimed at raising
Thankfully, good sense prevailed and the
opinions expressed by Mr Maharaj last week
in this space indicate a change of thinking
that brings him in line with my own views.
But that position---that it is better to sell
the shares now at a price that reflects Phoenix
Park's product prices---does not seem to be
Mary King, in a letter to the Business
Guardian editor published on page 10 of this
edition, argues: "To sell at this time of uncer-
tainty and of low prices below clearly what
is the market value of the shares is financial
irresponsibility, if not an attempt to provide
a steal of a deal to potential investors."
And I got this response from someone whose
intellect and communications skills I have
grown to hold in high regard.
"The editorial in the May 28 Business
Guardian confirmed what I have been warning
the citizens of Trinidad and Tobago about for
months. This is yet another wake-up call for
Trinidad and Tobago.
"The President of the National Gas Com-
pany (NGC) has confirmed that the value of
the shares of Phoenix Park Gas Processors
Limited (PPGPL) has dropped since they con-
ceptualised the IPO of PPGPL.
"NGC has now confirmed that it is expected
that the price that they will offer PPGPL's
share at, will be less than the price at which
they, (NGC), bought it in September 2013.
"This confirms the fire sale' of a very valu-
able state asset by NGC and the Government
of Trinidad and Tobago. They are selling assets
at less than the value at which they purchased
them (only a short time ago). Our valuable
state assets should not be the subject of fire
"Furthermore, it is stated that the money
earned from the IPO of PPGPL will be used
to fund the shortfall between Government's
revenues and its expenditure.' This was stated
by Kamla Persad-Bissessar, the Prime Min-
"What this means is that the Kamla Per-
sad-Bissessar Government is funding their
expenditure, in an election year, by selling off
valuable state assets in a fire sale.'
"The sale of valuable state assets should
not be done when their value is lower than
their potential value and furthermore, the rev-
enue derived from any such sale should be
used as investment for the future generations
and not squandered by a Government to fund
its expenditure in an election year.
"Do not forget that the Kamla Persad-
Bissessar-led government has already been
found to have taken unprecedented dividends
from NGC of over $10 billion within the past
couple of years. Again, this was used to fund
recurrent expenditure and not invested for
"This Government should not be allowed
to sell our valuable assets in fire sales. Citizens
must be alert and call upon this Government
to halt with the proposed IPO of PPGPL a
matter of days before a constitutionally due
The letter was written by PNM Senator,
Stuart Young, who is an attorney.
With respect to the positions espoused by
Mr Young and Mrs King, if the NGC decides
to sell the shares at the IPO at a fire sale price,
It seems quite evident to me that the insti-
tutions and individuals who invest in the shares
will eventually benefit.
Shares in the Phoenix Park IPO are not
going to be sold to a small cabal of UNC sup-
porters or to foreigner individuals and insti-
tutions. They will be offered to T&T citizens
and residents as well as to the country's pension
plans, mutual funds, trade unions, companies,
commercial banks and the National Insurance
If the IPO is a success, and the offer is over-
subscribed---as the First Citizens IPO was---
then the Phoenix Park share price is likely to
increase sharply in its first six months of trad-
ing. This will lead those who are looking for
short-term profit to sell their shares, which
will increase their wealth.
Those who hold the shares for the long term
are likely to benefit even more as Phoenix
Park's revenues and profits increase over time
when its product prices improve.
And then there is the twice-yearly dividend
the company will distribute to its new owners,
which according to the NIB executive director
is equal to a dividend yield of more than 7
Those who participate in the Phoenix Park
IPO are likely to receive both capital gains and
a steady stream of dividends for years to come,
which would increase the wealth of both the
country's institutions and individuals.
Is transferring wealth from a state-owned
company to the country's institutions and
individuals bad public policy?
And even if NGC sells the IPO shares for
less than it paid for them, if the share price
increases to more than $25, all of NGC's shares
in Phoenix Park would be worth more at that
point. It is important to remember that NGC
was a 51 per cent shareholder in Phoenix Park
from its inception and that subsequently some
of those shares were transferred to National
Enterprises Ltd in exchange for shares in NEL.
It is my view that there is nothing wrong
with a fire sale if the entire country benefits---
as is likely to happen if the country's financial
institutions and thousands of individuals buy
What's wrong with providing people looking
to get on the first rung of the property market
with a "steal of a deal" that increases their
wealth? If the IPO comes off this month, it
is also well-timed to address some of the liq-
uidity challenges that will result from the pay-
ment of back pay to thousands of public ser-
vants, teachers and UWI workers.
Should NGC scrap
Phoenix Park IPO?
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