Home' Trinidad and Tobago Guardian : May 15th 2014 Contents MAY 2014 • WEEK THREE www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG3
Chief editor-business: ANTHONY WILSON
Editing and design: NATASHA SAIDWAN
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In the April 17 edition of the Business
Guardian, under the headline Should
Phoenix Park IPO be delayed, the
proposition was advanced that there
was no need for the Minister of
Finance, Larry Howai, to push back
the Government s offering of shares
in the producer of natural gas liquids,
while it resolved the outstanding issues sur-
rounding the First Citizens initial public offering
That piece concluded by stating: "In the
context of Phoenix Park s profitability and its
dividend potential for ordinary individual
investors, it surely would be cruel and unusual
punishment for Mr Howai...to delay the com-
pany s IPO beyond June."
By a happy coincidence---and surely not as
a result of the commentary---the view put for-
ward in this space last month seems to be
shared by the Minister of Finance, as he indi-
cated in an interview in the waiting room of
the Ministry of Finance on Tuesday morn-
ing:Q: In terms of IPOs, you are on record
as saying that the IPO thrust is on hold
until the First Citizens issues are resolved.
When do you expect that to be?
A: That s an important question because
the issue of IPOs and the development of the
local capital markets is important.
This was our first IPO and we readily admit
there were some things that should have been
done differently and better. One of the things
we did not do is set internal limits for the
We thought that it was also important to
allow some of the investigations to take place
so that all of the other, if any, issues that we
should address prior to the next IPO, that we
understand what those are. We did not want
to go back in and find that something that
happened last time happened again because
we did not pick it up. We wanted to study all
of those different pieces of feedback that we
We have received the PwC report and the
SEC continues its investigation.
We think we have a good handle on it so
that as a consequence we have done a new
Cabinet Note and we are thinking that we will
not have a bucket for the staff. What it will
be is one for all individuals in the system as
a whole, except the staff will get a little discount
on the first amount that they buy, but it will
all be on a pro-rata basis for the entire bucket
We have refined that (the Phoenix Park IPO)
as a consequence of this (the First Citizens
IPO) and there are one or two slight changes
that we will make on the basis of what we
noted from the First Citizens experience. So
I expect that the next one, Phoenix Park,
should be very, very smooth.
The only issue for us now is a determination
of the pricing. You would probably be aware
that there are all kinds of issues with pricing.
The thing is that right now my (First Citizens)
shares are worth more than before I sold them.
That is the point I made in a column two
weeks ago and again last week that before
the IPO your 96 per cent of First Citizens
was worth $5.33 billion and now your 77
per cent is worth $7.37 billion. So what is
this argument that says you undervalued
the shares at the IPO? You sold it for $100
million less than it could have been sold
for, but the price has gone from $22 to $38.
Who has come out the winner? It seems to
me, and I have argued, that the State came
out the winner; the NIB came out the win-
ner; the UTC came out the winner.
And the citizens came out the winner---the
State representing the citizens because it is
your asset. As I told the union before: I now
have $1 billion that I can use to build a school
and a hospital and fix some roads with. Also
the State still owns the company and the value
of the shares that the State retains is worth
At the end of the day, therefore, the wealth
and the social value that this has created is
much more than if I had just sat down on the
shares and tied them up.
But the union still beats me up on it on a
regular basis. I understand that. They have a
philosphical and ideological point of view.
I think it is important to identify the price
for the Phoenix Park issue because there is a
bit of a bandwagon effect that takes place and
sometimes to the disadvantage of the more
unsophisticated investors and I want to be
careful of that as well.
I think the price of First Citizens IPO may
have skyrocketed to a level that was unsus-
tainable and perhaps did not reflect the intrinsic
value of the institution.
With this new IPO, we want to be sure that
we position it in such a way that we don t
take all of the profit out of it because what
then happens is that people just decide not
to buy the shares because there is no upside
And therefore the IPO fails and the State
does not get the value that it says it has because
if the IPO fails the price that was offered was
not the price the market was willing to pay.
So I hear what people are saying in terms
of the concerns about the pricing so that I
need to look at that again and come up with
a price that is fair and reasonable for the insti-
tution and the Government but still allows
the market to have some upside. If, for example,
I thought the top of the range might be $40,
if I went out at $40, nobody would buy and
no one would believe the price is $40. But if
I went out at $35 and investors bid it up to
$40, then everyone believes the price is $40.
We do use four different valuation method-
ologies and we look at the ranges and then
find a reasonable average which we use to
arrive at a final IPO price, other than for the
In the First Citizens case, we decided to
come in at $22, at the lower end of the range
of intrinsic values---which was between $21.35
and $28---simply because it was the first IPO
in a long time and we wanted to understand
how the market would react.
The First Citizens IPO exceeded even our
own internal valuations, which were done by
external advisers, and gave us returns much
higher than we anticipated even if we had
put it at the higher end of the range.
We are looking at the pricing issue to make
sure that it as effective as it can be and once
we have that in place, we put a Note before
Cabinet to move forward.
What is the timeframe? When are you
hoping to bring it?
I was hoping to do it by June, but they tell
me that the accounts become staledated by
a certain time. That would mean we would
have to redo the audit and then review the
new audit, which may push us back six weeks.
We may not want to do the Phoenix Park
IPO in August because people are travelling
or are on vacation, which may mean pushing
it to September.
Right now we are still trying to see if we
can get it done by June.
Is Phoenix Park IPO
back on June track?
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