Home' Trinidad and Tobago Guardian : April 10th 2014 Contents APRIL 2014 • WEEK TWO www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG3
Chief editor-business: ANTHONY WILSON
Editing and design: NATASHA SAIDWAN
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The controversy over the purchase by Phillip
Rahaman, the dismissed First Citizens
senior executive, of 659,588 shares at the
majority state-owned bank s initial public
offering (IPO) last year has reignited con-
cerns among the wider population that
the local stock market does not provide
them with a fair and equitable opportunity
to increase their wealth over the long term.
The reason that many people are furious with Phillip
Rahaman, his cousin Imtiaz and their broker, Subhas
Ramkhelawan, is that there is a perception that these three
gentlemen "gamed" the IPO for their financial benefit.
There is a perception, as well, that Rahaman/Ramkhelawan
benefited at the expense of thousands of people who would
have applied for less than 5,000 shares in the IPO, only to
have their applications pro-rated downwards because the offer
was over-subscribed by more than three times.
These perceptions have led some contributors to the nation s
blogs to conclude that the three gentlemen are guilty of a wide
range of securities sins, although T&T is a country in which
there is still a presumption of innocence up to, and until,
someone is found guilty.
There have been several calls for the chairman of the T&T
Stock Exchange (TTSE), who is none other than Subhas
Ramkhelawan, to resign and there has even been a call for
investors to boycott the TTSE until the chair steps down.
Another, more serious, impact of the Rahaman imbroglio
is that, as a result of the hostility of the public perceptions,
Minister of Finance Larry Howai has said publicly that the
Phoenix Park Gas Processors IPO will not proceed until all of
the reports into the Rahaman issue have been submitted and
As this process of investigation and reporting may drag on
for many months, there is a distinct possibility that the Phoenix
Park IPO may be delayed from it proposed date in June.
This would be most regrettable and is something that Mr
Howai should address in terms of setting a deadline for the
completion of the Rahaman issue.
That s because there are thousands of people in this country
who are anxiously waiting for the Government to bring the
Phoenix Park IPO as they have worked out that divestment
of profitable state companies can be a means of increasing
the wealth of the middle class.
This is a point, of course, that has been argued in this space
for years. This space has been used consistently to call on the
Government to divest some of its more profitable state-owned
companies as a means of distributing the wealth of the nation
to the country s investing individuals and institutions.
It is clear that a programme of state-sponsored divestment
is sound macroeconomic policy in a small, open, energy-
dependent economy which operates in a domestic environment
of high inflation, low interest rates and a dearth of long-term
From where I sit, the benefits of divestment are obvious
and have been well ventilated in this space over the years.
Divestment can dampen inflationary impulses
In a high-inflation, low interest-rate country, which has
achieved almost full employment and in which there is a
dearth of long-term investments, many people will spend
much of their disposable income on (mostly foreign) goods
and services unless they are confident that there will be high-
quality investments that can generate both capital gains and
dividends. If the Government is committed to the divestment
of profitable state enterprises, thousands of people may delay
acquisitions of (mostly foreign) goods.
Increase wealth of local institutions
Some 60 per cent of the shares offered for sale by the Gov-
ernment at the First Citizens IPO were allocated to T&T s
financial institutions---the National Insurance Board (NIB),
the Unit Trust Corporation (UTC) and other mutual funds,
pension plans, insurance companies and credit unions.
Those institutions took up 55.7 per cent of the shares on
offer, with pension plans, trust funds, credit unions and co-
operatives acquiring 25 per cent, mutual funds 20.7 per cent
and the NIB ten per cent. My own view is that the 55.7 per
cent taken up by institutions was appropriate because the
NIB, UTC and T&T s credit unions are all institutions that
directly serve the interests of T&T s less financially well off.
The First Citizens IPO would be particularly important for
institutions like pension plans, credit unions and the NIB
because they need a steady stream of income from high-
quality companies in order to ensure that their pensions or
the share dividends (in the case of credit unions) are at accept-
able levels. For example, the NIB cannot continue to increase
the benefits that it pays to retirees and its other recipients,
unless its investment income continues to increase every year
in line with the projections that have been made in its most
recent actuarial report.
Increase wealth of local individuals
Even though the price of the share has declined from its
peak, an individual investor who purchased 2,000 First Citizens
shares at $22 a share at the IPO would have an investment
that was worth $68,000 on Tuesday.
That means that that investor has an asset that is worth
54 per cent more today than it was when the bank was listed
in September last year. The investor would also have received
a cheque for $2,180, which means that their total investment
(capital gains plus dividend) is worth nearly 60 per cent more
than seven months ago.
In the Sunday Business Guardian last week, we interviewed
a couple whose income is $20,000 a month, but who are
having trouble acquiring the home of their dreams.
If that couple had acquired 2,000 First Citizens shares each,
the $88,000 they invested would be worth $136,000 today
and they would have received a dividend cheque of $4,360.
In other words, if they had $88,000 in their house fund in
September 2013, that fund would have $140,000 in it today.
The couple would then be in a position to allocate that
$140,000 in their house fund to the acquisition of shares in
Phoenix Park Gas Processors, which is a company that is even
more profitable and tightly managed than First Citizens.
Although no investment is without risk, young people who
are struggling to get on the property ladder should view the
Government s divestment programme---and in particular the
sale of a substantial percentage of the National Gas Company s
90 per cent shareholding in Phoenix Park---as the Government
providing them with a housing hand-up.
In fact, the possibility that young professionals can use the
Government s divestment programme as a means of them
arranging their finances so that they would be able to afford
to purchase a house in three to five years should be a major
selling point in the thinking of the Minister of Finance.
As the Stock Exchange is the only means by which the Gov-
ernment can divest its holdings in profitable state companies,
my recommendation would be to proceed with the Phoenix
Park IPO, while ensuring that lessons from the Rahaman issue
are learnt and used to make the application process more
Clearly, the Stock Exchange has some governance issues
that it needs to address quickly and because the board of the
exchange has many good people on it, it is certain that they
will do so.
Should we lose confidence
in the local stock market?
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