Home' Trinidad and Tobago Guardian : July 18th 2013 Contents JULY 2013 • WEEK TWO www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG3
Chief editor-business: ANTHONY WILSON
Editing and design: NATASHA SAIDWAN
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22-24 St Vincent Street,
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With the launch of the First Citizens initial
public offering of shares on Monday, the
Government has an unparalleled oppor-
tunity to transform T&T's middle class,
which has been struggling for the last
five years from a combination of high inflation, declining
interest rates on income funds and deposit accounts and a
slowdown in the increase in incomes as a result of the financial
collapse in 2008.
From all indications, the First Citizens offering of 48,495,665
ordinary shares at $22 a share is going to be hugely oversub-
scribed because the stock has significant upside potential and
it will generate a handsome and consistent dividend flow.
There will also be significant demand for First Citizens shares
because T&T individuals and institutions have been starved
of new equity investment opportunities for about a decade
and as a result of the vast amount of money that is sitting
in the deposit accounts of commercial banks and in the income
funds of the country's mutual fund providers.
The Central Bank estimates that in March 2013, the total
deposits held by commercial banks amounted to $93 billion,
while the same institution estimated that $35 billion was being
held in income funds.
I have used this space to argue before that the amount of
cash domiciled in deposit accounts and within income funds
could be a potential source of instability to the banking system
if enough people decided they wanted to retrieve their savings
immediately or if enough people decide that they want to
convert their TT-dollar savings into US, euro, sterling or yuan.
It is also clear that if deposits equal to 82 per cent of the
country's gross domestic product are earning a return of 1.5
per cent or less at a time when the average rate of inflation
is above 7 per cent, that the citizens of the country are getting
poorer over time.
In my view, it is the responsibility of the current admin-
istration to do all in its power to reverse the trend by which
the citizens of this country are being impoverished by the
combination of high inflation and low investment returns.
Clearly, among the policy options that the Government has
to reverse the impoverishment of the population is by controlling
the rate of inflation. But, to a large extent, influencing the rate
of inflation is beyond the control of the Government because
weather drives food prices in T&T and the country operates
a free market system in which imports are controlled by
relatively few number of large companies---in classical terms,
this is referred as an oligopoly.
The way that the Government can intervene to address this
issue of national impoverishment is by increasing the investment
opportunities available to the individuals and institutions of
The pricing of the First Citizens shares at such a large
discount to their intrinsic value is a significant policy decision
by the Government.
And I am not as concerned as minority share rights advocate
Peter Permell about the small number of shares that have
been allocated to individuals.
With 15 per cent of 48,495,665 being allocated to individuals,
thousands of nationals will be attempting to buy 7,229,349
shares. If the bank continues with its policy of pro-rating all
shares above 50, that means that if the allocation to individuals
is exceeded by five times, that everybody will receive one-
fifth of their application.
While that policy is clearly discriminatory to people of mod-
erate means (like myself) and favours the country's wealthy,
the situation can be remedied by the Government deciding,
after the close of application period, to raise the minimum to
It can also be remedied by one of the mutual fund providers
establishing 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 lower cost.
The establishment of an ETF for Government IPOs may be
an opportunity for the UTC---which is part of the mutual fund
allocation that will share 25 per cent of the shares on offer
(12.1 million shares worth initially $266.7 million)---to establish
a joint venture with the National Insurance Board and the
The NIB will receive 10 per cent of the First Citizens shares
on offer (some 4.84 million shares initially worth $106 million)
and the institution already owns 2,875,237 ordinary shares in
the bank. The Central Bank owns 6 million ordinary First Cit-
If the UTC and the NIB were to make half of their allocation
available to the ETF and the Central Bank were to make all
of its pre-existing shareholding in First Citizens available to
the ETF, there could be in excess of 12 million shares in the
The establishment of an ETF for Government IPOs would
ensure that a percentage of the excess demand for First Citizens
shares does not get pushed back into deposit accounts or
The setting up of such an ETF would also be a possible
investment vehicle for opportunities 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 due
to follow First Citizens with an IPO by December ;
• NGC is negotiating to purchase the 39 per cent of Phoenix
Park Gas Processors held by ConocoPhillips for about US$600
million ($3.8 billion). NGC, which is 100 per cent state owned,
already owns 51 per cent of Phoenix Park, although a significant
percentage of that stake is held by National Enterprises Ltd;
• NGC is also negotiating to acquire the interest of French
energy giant Total in T&T for between US$400 million and
US$500 million. 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.
• MHTL is still the subject of arbitration between Clico
and the minority shareholders of the methanol company, but
obviously the optimal solution is if the entire 56.5 per cent,
which is either owned or controlled by Clico should be sold
to an entity that is controlled by the individuals and institutions
of T&T. One assumes that Clico's stake in MHTL is worth
at least US$1.8 billion and that a company associated with
NGC might be the best vehicle to acquire the methanol company
on behalf of the Government and people of T&T.
In all, then, there are investments totaling the US$2.85 billion
($18.4 billion) that could or should be owned by T&T investors.
If the Government were to make shares in these companies
available to local investors, the State would literally be trans-
ferring its wealth (and the risk associated with it) to the indi-
viduals and institutions of this country.
Imagine the difference that such a move would make.
Will Govt opt to transfer wealth?
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