Home' Trinidad and Tobago Guardian : May 1st 2014 Contents MAY 2014 • WEEK ONE www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG3
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In October 2013, a company owned by
the British State named Royal Mail was
listed on the stock exchange in London.
The David Cameron administration
went ahead with the privatisation of
Royal Mail despite strong opposition
from the Labour Party and the trade
union that represented the 150,000 workers at
Royal Mail had an initial share capital of one
billion shares. Of that amount, 521.7 million
existing shares, representing 52.2 per cent of
Royal Mail s share capital, were sold to institu-
tional and individual investors, most of whom
were domiciled in the UK. Another 100 million
shares, equal to ten per cent of the company s
share capital, were allocated to the workers for
free. The UK government retained a 37.8 per
cent holding in Royal Mail.
The Cameron administration has been savaged
because Royal Mail, which was initially sold at
£3.30 a share, jumped by 38 per cent to £4.45
on its first day of trading.
Back then, the political leader of the Labour
Party, Ed Miliband, accused the Conservative
government of engaging in a "fire sale of a great
British institution," while Chuka Umunna, the
shadow business secretary, said the steep rise
on the first day of trading indicated the gov-
ernment had "massively shortchanged" taxpayers
by significantly undervaluing the company.
Speaking yesterday in the UK Parliament after
the naming of 16 "priority investors" who were
given preferential access to the Royal Mail initial
public offering (IPO), Miliband said: "I am raising
an issue about a rip-off of the taxpayer. The
reason why this matters is because the sale was
grossly undervalued. Shares sold for £1.7 billion
at privatisation, now worth £2.7 billion. And
who cashed in? Twelve of the 16 so-called long-
term investors made a killing worth hundreds
of millions of pounds within weeks."
Writing in the Sunday Guardian of April 20,
in a commentary headlined Suspect values and
FCB shares, consultant and columnist Maxie
Cuffie similarly argued that the First Citizens
IPO price of $22 had been grossly underval-
ued---which he suggested was another reason
for the dismissal of Minister of Finance Larry
According to Cuffie: "Not enough attention
has been paid to the fact that the IPO shares
were grossly undervalued and that Howai, who
took the Note to Cabinet recommending an IPO
range of $22 to $24 per share, must explain why
the Cabinet went for the lower figure disregarding
the difference of $2, which amounted to almost
$100 million foregone by the taxpayer.
"That $100 million, which would have accrued
to the State, has gone to already wealthy private
investors, including the Rahaman family. On last
week s valuation alone, the 48,495,665 shares
sold by the Government, now worth around $35
per share, were worth approximately $600 million
more than received by the Treasury.
"Appraising the value of an IPO is not an
exact science, since one has to arrive at a price
to attract investors while maximising shareholder
value in given market conditions.
"Given the current valuation of the shares,
one needs to question how the Corporation
Sole got it so wrong."
This is an interesting argument and Maxie,
(a school friend and a former Guardian editor)
is, without doubt, one of T&T s finest minds
and certainly one of the outstanding journalists
of his generation. But argument falls down when
faced with facts.
The fact is, according to the First Citizens
prospectus, while First Citizens Holdings Ltd
(FCHL), the State s holding company for First
Citizens, sold 48,495,665 shares to local insti-
tutions and individuals, FCHL retained
193,982,660 of the bank s shares.
At Wednesday s close of trading at $38.20
per share, the State s existing shareholding in
the bank was worth $7,410,137,612. In other
words, the fact that Cabinet decided to forego
$2 a share by pricing the IPO at the lower end
of the $22 to $24 range, should be balanced
against the fact that State s current 77.2 per
cent stake in First Citizens is valued at $7.4
billion. I would argue that the Corporation Sole
stands to do very well for taxpayers by foregoing
Additionally, First Citizens has declared two
dividend payments totalling $1.66 since the list-
ing of the company in September: one for $1.09
in January for the 2013 financial year and one
for $0.57 for the six months ended March 31,
2014. By my calculation, that means the Cor-
poration Sole, who Cuffie argued got it so wrong,
is entitled to $322,011,215.60 in dividend pay-
ments from the bank that it still owns and con-
trols. (Imagine the dividends to the State eight
months after listing more than three times the
$100 million Maxie claims the State foregoed.)
Thirdly, the National Insurance Board took
up the full ten per cent that was allocated to
it at the IPO; that s 4,849,566. When put with
the 2,875,237 shares that the NIB held before
the IPO, the State s social security provider---
the entity that pays pensions to every retired
man and woman in this country and benefits
to thousands injured, pregnant or widowed---
owns 7,724,803 shares in First Citizens. Those
shares were worth $295,087,474.6 at the close
of trading on Wednesday and the NIB is entitled
to $12,823,172.98 in dividends from the bank.
To argue that the State has cheated itself
with regard to the First Citizens IPO is a little
Plus, to suggest, as Maxie does, that most
of the beneficiaries of the First Citizens IPO
were "already wealthy private investors" is
Clearly, on paper, the State and the para-
statal entities like the NIB, UTC and NEL have
garnered huge gains from the IPO.
So have the country s credit unions and co-
operatives, which along with registered pension
and other trust funds, received 25 per cent of
the shares sold at the IPO.
So have the 800 or so employees of the bank
who rejected the advice that was being purveyed
by their trade union.
The thousands of individual investors who
applied---most of whom had their applications
prorated---are also significant beneficiaries.
In my view, the fact that the entire country
has benefited from the State s divestment of
First Citizens is beyond doubt and even those,
like Maxie, who opted not to apply, will benefit
because the IPO has made NIB, UTC and the
nation s credit unions more profitable enter-
prises. The fact that a family is alleged to have
gained an unfair advantage should not detract
from the huge benefits gained by T&T.
It is also clear that T&T can learn something
from how the UK dealt with the Royal Mail
divestment compared with how the First Cit-
izens IPO was handled.
In the UK, some 150,000 eligible full-time
employees of Royal Mail received a little over
100 million shares. This was ten per cent of
the company s market capitalisation when it
was listed on the London stock exchange in
While in T&T, First Citizens employees were
allowed to buy up to 5,000 shares at $19.80,
which was a ten per cent discount of the $22
offer price, the eligible Royal Mail employees
were each guaranteed an allocation of 725 FREE
According to the November 6, 2013 edition
of UK publication Employee Benefits: "The
surge in the share price once normal market
trading began, from £3.30 to an average £5.40
per share within a few days, meant that the
ten per cent share offer had to be amended.
This is because employee participants in a tax-
approved Share Incentive Plan (SIP) share
scheme being used by the postal workers as a
home for free shares, are only allowed a max-
imum investment of £3,000 worth of free
shares per year."
This meant that the surge in the Royal Mail
share price put the value of the free shares
above the annual limit by around £1,000. This
led to the Royal Mail providing employees with
613 shares in the 2013 fiscal year and 112 shares
in the 2014 fiscal year, which began in April.
One of the conditions of the Royal Mail
employees each receiving the free shares was
that they would have to hold those shares for
at least three years.
Did Howai undervalue
First Citizens shares?
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