Home' Trinidad and Tobago Guardian : May 8th 2014 Contents L
ast week, in this space, in response to a Sunday
Guardian column by Maxie Cuffie, the question
was asked: Did Howai undervalue First Citizens
To answer the question asked last week more directly: of
course, the Minister of Finance undervalued the IPO price
of First Citizens. The more pertinent question is why did he
undervalue the price at the IPO?
The answer to that question was provided for all prospective
shareholders of the bank at Page 16 of the prospectus under
the rubric Purpose of the offer.
In this statement of purpose, the Ministry of Finance
referred to the 2011 budget speech in which the Government
outlined a capital markets programme that would seek to
widen and deepen the domestic capital market as a means
of expanding the domestic economy and in the process
improving productivity and generating quality jobs through:
n Promoting efficiency by exposing businesses and services
to the greatest possible competition
n Spreading share ownership as widely as possible among
the population as well as encouraging greater participation
by nationals in the ownership of state enterprises
n Obtaining the best value for each enterprise which is
sold by the Government
By divesting a portion of the State’s interest in First Citizens,
the Government provided “investors with a long-term invest-
ment in the banking sector, add(ed) to total stock market
capitalisation and at the same time dampen(ed) inflationary
pressures,” according to the prospectus.
The reason the shares were sold to the population at less
than their intrinsic value was because the Government wanted
to spread share ownership as widely as possible among the
population in order to ensure that much of T&T’s middle
classes as possible benefited from both the tax-free capital
gains and the tax-free dividends resulting from direct own-
ership of the bank.
It seems to me the fact that the bank has declared or paid
$1.66 in dividend income and its share price has moved from
$22 to around $38 a share must be an indication that the
initial public offering (IPO) was an outstanding success.
And not only for the country’s middle classes. As was
noted last week—and it is a point that most of the commentary
on the piece seemed to have missed completely—the entity,
apart from the State, that benefited the most from the First
Citizens IPO was the National Insurance Board. NIB owns
7,724,803 shares in First Citizens. Before the IPO, those shares
were worth $169.92 million. On Tuesday, said shares were
worth $293.66 million and by the end of this month, the
NIB would have collected nearly $13 million in dividend
income from the bank.
The fact that NIB subscribed for the ten per cent of the
IPO shares that it was allocated (in addition to the 2,875,237
ordinary shares in First Citizens that it held previously) com-
pletely debunks the claim made by Mary King in a May 2
posting on the Jahajee Desi blog headlined FCB IPO, A Local
Heist? that: “After the divestment, the remainder of shares
held in trust by the Government belongs to the entire pop-
ulation and the part divested belongs to the few to do what
they please with them and/or the income returns, by virtue
of what they paid for the shares.”
Her argument that the divested shares belonged “to the
few to do what they please with them” seems without basis
The argument falls flat in the face of the fact that NIB is
now the second-largest First Citizens shareholder with 7.724
million shares. UTC, which acquired about six million shares
at the IPO, is the bank’s third-largest shareholder. The State
retains 193.98 million shares in the bank worth $7.37 billion
on Tuesday, a significant increase from the $4.26 billion the
shares were worth before the IPO. The State will also have
banked $322 million in dividends from First Citizens by the
end of this month.
How on God’s green earth—as former Guardian general
manager Douglas Wilson likes to say—can the First Citizens
divestment be perceived to have gone “to the few to do what
they please with them,” when NIB now owns nearly eight
million of the bank’s shares?
In case we forgot (or never knew), in its 2012 financial year,
NIB represented a customer base of 634,381 citizens of the
Republic of Trinidad and Tobago (about half of the population)
and made $2.75 billion in benefit payments, including to
125,185 long-term beneficiaries.
Does NIB represent the few, as Mary King would have us
believe, or does it represent the many?
How is NIB going to sustain the increase in the maternity
payment to 14 weeks and the monthly retirement pension
to $3,000 from $2,000 if not by the expansion of the local
In the NIB executive director’s report for the financial year
2012, Lorna Charles stated: “Our net realised investment
yield of 5.98 per cent represents a net realised investment
income of $850 million for the financial year—a decrease of
13 per cent from the $980 million figure recorded for financial
year 2011. This was 17.48 per cent or $180 million less than
the budgeted figure of $1.03 billion.
“The lower-than-expected income levels were attributable
to lower-than-anticipated dividends from foreign equity
holdings, as well as reduced levels of investment than initially
budgeted in government bonds and corporate bonds.”
How is NIB going to keep increasing benefit payments to
the increasing number of retirees and other beneficiaries if
it does not meet its return on investment targets?
And how is it going to meet its return on investment targets
if not by a continuation of the programme of IPOs of high-
quality, profitable state enterprise companies that are delib-
erately undervalued by the Minister of Finance?
Do these commentators care about the actuarial soundness
of NIB and about the thousands of T&T retirees whose only
source of income is their NIB pension?
In King’s posting, she questions whether the First Citizens
IPO was a local heist, following the fashion of an article by
Joe Guinan and Thomas Hanna: Privatisation, a very British
Disease that she invites readers of the blog to google.
She says she supports the sale of T&T’s low risk and prof-
itable assets near market value “if the resources so collected
are to be reinvested in diversifying the economy—to develop
new and sustainable production assets.”
I am totally on board with regard to the diversification of
the T&T economy. So let’s create a specialised diversification
fund that provides low-interest loans to manufacturing and
technology start-ups and is seeded with initial funding from
the Government and the international financial institutions,
and that has a board with representatives from the State,
the business sector and NGOs.
But that is a separate and distinct issue from the State
transferring wealth to the population in a way that enriches
the financially enlightened middle classes and ensures that
NIB, UTC and the nation’s credit unions have investment
returns that outstrip the rate of inflation.
How could the transfer of wealth from the State to the
population be considered a “heist” when such transfers allow
citizens to be able to afford to purchase a house, educate
their children and plan for their retirement?
Would the purchase of a house, the education of children
and planning for retirement be possible if the shares are held
in trust for the population by the State?
Is it better for shares to be held in trust for the population
by the State or for the shares to be transferred to the pop-
ulation—including the financial institutions who truly act as
trustees for lower income citizens—so that the population
can decide how and where to spend their enhanced income
MAY 2014 • WEEK TWO www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | PAGE BG3
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Who really benefited from IPO?
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