Home' Trinidad and Tobago Guardian : August 20th 2015 Contents AUGUST 20 • 2015 www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG15
Initially I decided not to write on the
T&T NGL initial public offering due
to various relationships and interests.
However, I have received many requests
for comment and so please note the
statement at the end of this column.
In observing the feedback, comments and
questions related to the T&TNGL initial public
offering (IPO), two things are apparent. As a
country we have not yet understood how to
invest and, despite the energy sector being the
main contributor to our economic and financial
well being, we do not properly understand how
that sector functions.
The result of these two factors: there is sig-
nificant public uncertainty related to the IPO
with many questions---all valid I might add.
Regardless of one s views on the IPO itself, the
process of awareness and discussion is going
to benefit the country.
Hopefully, there is a programme of divest-
ment that transcends the political divide so
the public can become more aware of matters
which are very relevant to them and which
would allow citizens to take greater control of
their financial future.
You will recall the many debates in the after-
math of the First Citizens IPO and, prior to
the launch of this IPO, whether the initial price
at which shares were offered were above or
below where it should have been.
The issue of under or over valuation was a
point of debate.
In the case of First Citizens, because of the
significant capital appreciation that took place
in the immediate aftermath, there was the
suggestion that the initial offer price was too
In the current scenario, while the initial dis-
cussion centred on the offer being undervalued,
there are now suggestions that this is not the
case given the outlook in the energy com-
Investing or speculating
Before you get to value and price, the first
thing to consider is the suitability of the invest-
ment to your present financial circumstances.
I have often made the point to clients that
a one per cent holding in a Venezuelan or Iraqi
bond is not out of place in a portfolio where
99 per cent consists of US Government treas-
You assess risk based on your portfolio of
investments so participating in the T&TNGL
IPO should not be a one-off event. If you have
never participated in the stock market or own
shares in a publicly listed company then appre-
ciate that participating in the T&TNGL IPO
is a start towards building an investment port-
If you are simply seeking to buy shares
because you believe the stock is likely to go up
then you are speculating.
Please take a look at the accompanying table
which provides a sample of the companies
listed on the T&T Stock Exchange, the date
on which those companies were listed, the
price at which they were listed and their current
price as at August 14, 2015.
Appreciate clearly that it is a mixed bag. Not
every IPO was a First Citizens and not every
IPO needs to be a First Citizens in order to be
successful for an investor.
First Citizens generated a return upwards of
70 per cent within the first year of the IPO.
That has been the most recent experience of
market participants and one of the main points
to grasp from this article is the unusual nature
of that type of return.
Many factors contributed and these include:
the very high levels of TT dollar liquidity at
the time; the low level of interest rates; that
it was priced at an attractive valuation relative
to earnings; carried a dividend yield that was
better than a fixed income return; was operating
in a stable mature industry that the majority
of citizens understood as all participants would
have interacted with banks and, finally, the
fact that it was the first listing of an operating
business since Sagicor in August 2004.
Some of those factors remain for the
T&TNGL IPO but appreciate that having all
the ducks lined up---as was the case with the
First Citizens IPO---is not the norm. Investing
is about taking risk for a likely return and the
challenge for investors is to understand the
risks that they are taking.
The T&TNGL IPO should be just one stock
in an investment portfolio. Reference again the
accompanying table and appreciate that some
of the past IPOs have generated very good and
consistent returns while others have not fared
The Clico Investment Fund (CIF) is trading
below the IPO price of $25 per share. Sagicor
started out at $12.86 and now trades at $6 per
share. However, there are others such as Nation-
al Enterprises Ltd that have provided decent
and steady returns to investors moving from
$4.00 to $17.90 from 2001 to present, along
with a healthy dividend.
Then, of course, there are the steady and
stable companies such as Republic Bank, Sco-
tiabank and Massy Group that have provided
significant returns over multiple decades.
Appreciate the returns generated from holding
these stocks over the 34-year period as a pub-
licly listed company.
This is really where investors should be
focused; ie an opportunity to add a new stock
to their portfolio and hold that stock for the
long term. Appreciate that a portfolio containing
First Citizens, Republic Bank, NEL, Scotiabank
and Massy is decidedly less risky than buying
a single stock in an IPO and having it end
Returning to the question of valuation you
the investor have to consider the business cycle
of the company that is on offer. If this IPO
was made six or seven years ago the valuation
may have been significantly higher and you
would be counting losses at this point on
account of the outlook for commodity prices
The timing of the IPO, coming at the lower
end of the commodity cycle, means that the
past performance does not paint the rosiest
of pictures. The fundamental question that
you need to consider is whether the prices for
energy commodities are likely to rebound during
your investment horizon, whether we have
sufficient gas supplies to support the business
model through your investment horizon and
whether the dividends that you are likely to
receive are sufficient to compensate you for
waiting through the soft period that currently
exists. Beyond that, you should consider what
is the best alternative use of your funds as it
relates to the achievement of your investment
This is the approach of an investor. Yet many
are wont to speculation, even gambling. It is
quite possible given the prevalence of members
clubs and the expansion of the lotto games
that there are more people participating in the
high risk, zero sum activity of gambling than
managing risk and securing their future through
It would be useful to compare the number
of people with accounts at the T&T Central
Depositary compared to the number of people
who participate in gambling in T&T.
A big part of the problem is: people are not
taught about risk and how to manage risk in
order to achieve their investment goals. Those
who are inclined to invest are given the false
premise that investing is about avoiding risk.
Thirty years after its formation we still have
pseudo state organisations offering guarantees
of principal on income funds. It means multiple
generations of investors have been brought up
with the singular understanding that they can
invest money, have access to it at any time,
without any loss of principal and earn a rate
of return above that which can be obtained by
leaving it in a bank account.
To the best of my knowledge such invest-
ments do not exist anywhere in the world, at
least not where we are aspiring to be, that is,
a developed nation.
It is also possible to invest in a growth and
income fund where you have exposure to long-
term bonds and stocks; assets that experience
price fluctuations, and still have your principal
guaranteed after three years.
I am making these points not as criticism
of any institution but to make the case that,
as a country, we are long past the introductory
stage and these types of investment incentives
need to be removed. It is the investing equiv-
alent to the gas subsidy as it engineers sub
optimal behaviour and does not meet our
Our capital markets cannot develop the
sophistication that is necessary to secure the
financial future of a rapidly aging population
with these "subsidies" in place. Other market
participants cannot compete against a pseu-
do-state guaranteed investment and so we
remain with tenuous competition, at best,
which creates other risks and an underdeveloped
The impact of our investment landscape is
now reflected in the apprehension that the
public is expressing when faced with a genuine
decision of assessing risk and return.
Ian Narine is a broker registered with the
SEC, is a director of First Citizens Bank
(banker and lead broker to the IPO), a direc-
tor of the T&T Stock Exchange and a mem-
ber of the investment committee of the
National Insurance Board (NIB is a share-
holder in the PanWest consortium). He can
be contacted at firstname.lastname@example.org.
How to invest
in an IPO
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