Home' Trinidad and Tobago Guardian : August 23rd 2015 Contents After almost two years, locals
now have an opportunity to
buy shares in one of the
country s more profitable
Phoenix Park Gas Processors
Ltd (PPGPL). Unfortunately, the opportunity
is an indirect one as the shares have been
"packaged" within a non-operating entity,
T&T Natural Gas Liquids (T&T NGL) about
which I will say more later.
If one buys an asset for US$600 million,
receives dividends totalling US$71 million,
then sells 49 per cent for US$226.1 million
(US$230 million less 1.7 per cent for selling
and related costs), what is the residual value
of the remaining 51 per cent?
This suggests that the residual NGC s 51
per cent in T&T NGL, before adjustments,
could be worth US$444.9 million. Using an
exchange rate of TT$6.35 to US$1.00, this
translates to TT$2,825.12 million.
From this result, we deduct the impairment
loss of $1,098 million and the exchange loss
of TT$51.1 million, which leaves us with
TT$1,676.02 million. Relating that result to
the remaining (after the IPO) 78,948,000
shares that NGC owns in T&T NGL, we derive
a per-share value of TT$21.23. This works out
to a "premium" of about 5.8 per cent on the
Looking at the transaction from this per-
spective, the Minister of Finance made a rea-
sonable assertion that the deal yields "a little
more than what we paid for it".
Despite this explanation, it remains true
that part of an asset that was bought at the
equivalent of TT$25 per share is now being
sold at TT$20 per share; such are the realities
of market forces and changed economic times!
The T&T NGL intermediary
Despite this favourable situation, it is inef-
ficient and cumbersome for NGC to use an
intermediary company, T&T NGL, to hold the
39 per cent block of shares in Phoenix Park
Gas Processors Ltd.
At page 39 of the prospectus, it states: "The
company anticipates that it will create share-
holder value over the long-term through antic-
ipated future appreciation of its investment
in Phoenix Park, and through expected reliable
and durable dividends from Phoenix Park."
Very likely, both these objectives can be
achieved more reliably by investors having a
direct, not indirect, ownership stake in PPGPL.
Effectively, this structure blocks investors
from having more thorough access to the
workings and affairs of PPGPL. It also creates
an unnecessary administrative burden, which
cost is borne by shareholders.
The main purposes of this entity are to
receive dividends, incur listing, reporting,
accounting and auditing expenses before dis-
tributing a dividend. Is this really necessary?
At page 52, we are given some details of the
monthly fees and allowances of the board
members, which are not insubstantial. Since
T&T NGL has no business operations of its
own, its major activity is to collect dividends
from PPGPL. It is not yet in a position to
invest any surplus income.
On an annual basis, with one chairman and
four directors, these fees are estimated at
Information on the initial and continuing
costs of its listing on the TTSE can be found
on the TTSE s "Going Public" brochure. For
starters, the admission fee is set at 0.10 per
cent of market capitalisation.
At $20.00 per share, the T&T NGL has an
initial market capitalisation of $3.096 billion;
consequently, its admission fee is $3.096 mil-
lion. (This admission fee may be payable by
NGC, as part of "advisory and listing fees"
as stated on page 31.) There are also annual
fees, such as, TTCD annual fee and register
maintenance amounting to $35,000. Finally,
there is the annual listing fee of $113,000.
Of course, these fees and others are not
excessive for an operating company, like
PPGPL. However, for a shell company with
no real business operations, such as T&T NGL,
these and other costs drain its income and
reduce the sums available for distribution to
We also learn that NGC has directed PPGPL
to pay a monthly dividend to T&T NGL (Refer
to page 137 under the "Liquidity" comments.)
This arrangement is designed to help T&T
NGL "get on its feet" so that it can start paying
its expenses on a timely basis. Another benefit
is to increase the regularity of conversions of
US dollars into TT dollars, which should help
(in a small way) the onshore economy s per-
petual shortage of US currency.
In an age where we want to foster greater
transparency, why are such barriers being
erected to investors having a direct ownership
stake in an entity?
Such direct ownership will provide access
to the real operators of the company, whose
job it is to create wealth for the owners (via
dividends and capital appreciation) and provide
income (including foreign exchange and taxes)
to the government.
Who wants to deal with NGC/state-appoint-
ed functionaries, who are likely to provide
only the most carefully crafted "approved"
statements about the operating company s
In this context, we recall that the prices at
which companies receive and sell natural gas
and related products still seems to be a "state
secret". Opening up the ownership of PPGPL
in a direct way would have been a unique edu-
cational opportunity for investors and the
country to have a better understanding of this
Lack of financial projections,
but indirect tips
At no point in the 300-page plus document
does the prospectus make any meaningful
effort to provide financial projections for future
years accompanied by some discussion about
the factors that inform such estimates.
Are potential investors supposed to guess
as to what dividend they might receive?
What are the continuing challenges that
the operating company (PPGPL) faces and
how does that impact investors expectations?
To be sure, there are several references to
the many price variables that impact on
PPGPL s operations. These include a general
discussion on pages 64 through to 68.
A key statement is found at page 102: "Sell-
ing prices of NGLs are expected to recover
from the depression in the current market
conditions in year 2018 and steadily increase
year on year." If we can "ride out" the next
three years or so, imagine how profitable
PPGPL could become post-2018!
On the product sale side, we learn that Mont
Belview (MBV) price variability will impact its
earnings. For its three main products---propane,
butane and natural gasoline---prices have fluc-
tuated significantly over the past five years.
At page 3 in last week s Sunday Business
Guardian, we were shown a table, which com-
bined data from page 282 of the prospectus
and was updated with information from page
297. The last line showed the weighted average
This figure represents the difference between
the reference price (MBV) and the FOB price
Phoenix Park charges or is able to charge for
its products. Starting in 2011, this differential
has been increasingly positive, reaching as
high as 18.79 as at March 2015.
This suggests that PPGPL has a growing
leeway to increase its product prices as con-
tracts come up for renewal. At paragraph 2 on
page 166, this point is further expanded.
A more complete picture would have shown
which specific products, propane, butane or
natural gasoline, commanded the highest dif-
Much has been made about PPGPL paying
out more than it earns in the years 2012, 2013
and 2014. However, if we look at the five years,
2010 to 2014, PPGPL s net profit totalled
US$1,150,673,000. Over this same period, div-
idends paid equal US$1,111,000,000. This
means that its five-year profit still exceeds its
The last column in the table tries to show
a "worst case" result for PPGPL for 2015.
I have assumed, for example, that revenues
will fall by 40 per cent and the net profit mar-
gin declines to 22 per cent from the close to
25 per cent achieved in recent years. In keeping
with recent trends, I have estimated that the
entire profit will be paid out as dividends.
Following through on that unscientific esti-
mate, we can project that TT NGL could receive
a total divided of US$35,967.75 (39 per cent
of US$92,225,000.) This translates to almost
TT$228 million (converted at TT$6.33 to
After costs and adjustments, we might
assume a payment percentage of 80 per cent
or about TT$182.4 million. Based on T&T
NGL s issued shares of 154.8 million, that sum
signals a total dividend of TT$1.18. How realistic
is this projection?
Based on the IPO price of $20, the estimated
dividend of $1.18 equates to a yield of 5.9 per
cent. Many investors are happy with a yield
as low as three per cent, so it is conceivable
that the share price could reach as high as
$39.33. ($1.18 divided by three per cent).
Conversely, at a future date, some institu-
tional investors may require a higher dividend
yield to compensate for the larger risk inherent
in the underlying asset (PPGPL). This would
be based on freshly updated financial and
market information. For example, they may
demand a yield of say eight per cent. That
expectation suggests a share price of $14.75!
($1.18 divided by eight per cent.)
Even after peaking in 2011, PPGPL continued
to provide significant sums via taxes and foreign
exchange to its shareholders, the government
and the wider economy; this is evident from
the table above.
More than most listed companies, it is
exposed, at the input and output levels, to
global competitive forces and sometimes harsh
price swings. Despite this, in the cases of both
the supply of raw materials and the sales of
finished goods, it mostly operates with medium
and long-term contracts, which gives it a
degree of price stability while limiting its
down-side risks. This is a significant source
of PPGPL s strength.
Partly because it is not yet officially listed,
it seems unlikely that TT NGL will issue its
second quarter results to June 2015 before the
IPO closes. (Does its absence constitute a valid
excuse or qualify as a material omission?) That
document would have given us a better gauge
as to its current and near-term prospects.
For investors who can tolerate an above-
average level of share price and dividend vari-
ability, an investment in the T&T NGL IPO
could be a good deal; enjoy the ride!
AUGUST 23 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
STOCKS | SBG11
The T&T NGL (Phoenix Park) IPO
Are potential investors
supposed to guess as to what
dividend they might receive?
What are the continuing
challenges that the operating
company (PPGPL) faces and how
does that impact investors'
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