The GT&T share sale (Conclusion) and the New Building Society

In today’s Business Page I conclude the discussion started last week on the announcement by Dr Roger Luncheon that the government has sold the country’s 20% shareholding in the telecommunication company Guyana Telephone and Telegraph Company Limited (GT&T) to an unknown Chinese entity. The announcement came a few days after the 2012 Budget Speech which contained no mention of the sale negotiated by NICIL of which the Finance Minister is the Chairman.

Well we now know that the Chinese company is Datang, less known for its connection with the Chinese Liberation Army than for its development, production and sale of electronic information systems and equipment. Incredibly the company appears to have not had a formal meeting with the 80% shareholder, Atlantic Tele-Network of the USA and it will certainly be interesting to learn how the usually sceptical US Government will view a partnership of their company with the Chinese who do not have a good record as a respecter of intellectual property or confidentiality of information.

Under the Companies Act 1991, the ownership of the shares in the company will pass to Datang on the delivery to them of the transfer form and the share certificate. At that point, except that the government is the government, it would cease to have any interest in GT&T. Interestingly, at that point, the Government of Guyana’s rights under the 1991 agreement with ATN in relation to any share-ownership right shall cease. Datang will no doubt soon present itself to the GT&T management with the share certificate and transfer form in their hand for what will no doubt be a very useful exchange.

Last week we were told that the government is selling its interest for US$30 million of which US$25 million is to be paid immediately and the balance paid later. Meanwhile in a couple of weeks Datang will participate in an AGM at which dividends will be on the agenda. Unfortunately Mr Winston Brassington seems to have negotiated an agreement under which dividends that ought to come to the government will go to Datang! How eerily does history have a way of repeating itself! A not too dissimilar situation arose when the PNC administration sold Guyana Telecommunications Corporation with a bundle of cash in the bank. I wonder what those who then accused the PNC of being either careless or stupid would think of the Privatisation Board and the Cabinet for giving away US$2 million.

But that is not the only give-away. At US$30 million, the price for the shares is a significant markdown on what the shares are worth. GT&T is not a public company and its shares are not traded anywhere for their value to be determined. There are then two options. The first is to take all relevant factors into account, project the income of the company into the future and discount these into present day value. The alternative is to take a price earnings ratio (a vital tool used by investors) of the shares in a similar entity and, making adjustment for specific factors, apply a P/E ratio to the earnings of the company. Using that method I have arrived at a price of approximately US$40 million.

So we – or rather Drs Luncheon and Singh and other ministers along with Brassington have given away some US$12 million of the taxpayers’ money. They did the same when they waived some G$400 million of interest and preference dividend in the Berbice Bridge Company Inc so that the private sector entities could receive theirs.

The question why these gentlemen would have acted so recklessly and secretively probably has to do with the diversion of public funds from the Consolidated Fund to the illegally operating NICIL, all the directors on the Board of which are Cabinet members. That is unheard of anywhere in any self-respecting country, but is easily explainable as the creation of an illegal fund from which Cabinet can do as it pleases: pay over price for goods and services, divert, build white elephants, etc – all in complete violation of Articles 216 and 217 of the constitution. And to add some veneer of legality and acceptability to the saga, Dr Singh the Finance Minister, had the decision passed through the Privatisation Board of which Dr Singh is the Chairman!

These bright gentlemen have decided to bypass the constitution and do through the backdoor what they are not allowed to do through the front door.

On the Line: 2011 Annual Report of New Building Society
The editor reminded me that it is that time of the year when annual reports for companies and entities with a December 31 year end become available. Starting today with the 2011 Annual Report of the New Building Society (NBS) Business Page will review those reports well aware that other national economic issues will not wait. The page will try to offer a balance between the two.

The annual general meeting (AGM) of the NBS is slated for Saturday April 28 and will be held in the Society’s new head office in North Road, to which the Society moved a few weeks ago. It is to the credit of the institution that the move appears to have gone off quite smoothly, at least so far as the customers were concerned.

Readers will recall that the Society was brought under the Financial Institutions Act in August 2010 and the results for 2011 would have been the first full year since the new status. Surprisingly, however, there was only a passing reference to the impact of this is in the Chairman’s report: “It is also to be noted that notwithstanding the Society is currently governed under the New Building Society’s Act, Chapter 36:21, the Supervision by the Bank of Guyana, must be seen as a positive sign.” I am sure members would have liked to know the full impact, if any, the FIA has had on the Society in the absence of which the directors should have indicated whether they intend to take the full four years to come into full compliance with the provisions of the Financial Institutions Act.


Source: 2011 audited financial statements

As the table above shows interest income from mortgages and other assets fell by 5% but interest paid on deposits declined by a dramatic 26% with the result that the net interest income increased by $229 million. Loss on exchange has again raised its ugly head after the directors resiled from a members’ decision to repatriate the moneys held in the UK and as a consequence the Society lost some $26 million following a $7 million loss in 2010.

Dr Nanda Gopaul, who has signalled his intent not to continue as Chairman of the Society following his appointment as a minister of the government, in his report announced a “record profit of $772M being made, an increase of 34% over the previous year.” According to Dr Gopaul this “was achieved despite reducing our mortgage rates for lower, middle and higher income mortgagors at the beginning of the year from 4.75%, 6.95% and 7.95% to 4.25%, 6.25% and 7.45% respectively.” That was only half the truth since the reduction in interest income was only $123 million. The real reason is obvious from the graph below that shows that while the returns on loans have declined from 7.3% in 2009 to 6.7% in 2011, the average interest paid to depositors declined dramatically from 4% to 2.7%!

It would have been helpful if either the Chairman or the CEO gave an explanation for the significant reduction in the Society’s deposit rates rather than have members speculate on whether the Society is carried away by the misnomer “profits” rather than surplus, or is seeking to discourage persons putting money into the Society which it is then unable to on-lend.

Returns on Loans, investments and deposits

Source: 2008 to 2011 audited financial statements

Assets and their returns

Source: 2010 and 2011 audited financial statements

The Society has increased its loan limit to $15 million subject to ministerial approval, which it says the Society is working towards making a reality, so that its financial resources can be more beneficially utilised to the advantage of members and customers.

In 2011, there was a net increase in the number of mortgage accounts of 276 while the Society disbursed mortgage advances for the year totalling $4.2B, another record, which was 43% higher than the previous year. At year end, the mortgage portfolio was 52% of Assets or 61% of Total Investors’ balances.

The Society continues to record its satisfaction in its investment in the Berbice Bridge Company Inc, which earned the Society a healthy return during the year and some 32% cumulatively. The Berbice Bridge commuters’ pain is the NBS’s members gain. While the financial logic of the decision to make the investment cannot be faulted, the amendment to the Act permitting the investment and the financial structure of the bridge transaction by the Jagdeo-Brassington team is one costly venture for the country’s taxpayers who have had to finance substantial tax concessions benefiting the bridge investors.

Statutory breach

Source: 2009 to 2011 audited financial statements

Two years ago, Business Page highlighted the breach of the proviso to section 7 (d) of the New Building Society Act. Despite this, the situation has deteriorated and the shortfall in mortgage assets has increased by 58%.

Next week, I will review the annual report of Demerara Distillers Limited, whose annual general meeting will be held on April 27, 2012.

The GT&T share sale

Even before the debate on the 2012 Budget begins, it is overtaken by an event not outside the control of the government, but well within it, an event that has been in the pipeline for years. Drs Jagdeo and Ashni Singh and their loyal servant Mr Winston Brassington had been speaking about, offering and negotiating to sell the government’s 20% shareholding in the telecommunication company Guyana Telephone and Telegraph Company Limited (GT&T) for at least three years. Yet the Finance Minister could not find a place in his 87 page speech to alert the plebians that an investment that brought in around US$2 million per year was in the final stages of disposal.

Guyanese must thank Cabinet Secretary Dr Roger Luncheon for the timeliness of the announcement at a press conference just one day after the decision by Cabinet to sell the pearl of the cacique crown for US$30M ($6B) to a “Chinese company” whose name, incredibly, Dr Luncheon could not remember. Guyanese would find it difficult to accept that Dr Luncheon, who also sits on the Board of NICIL under the chairmanship of Dr Ashni Singh and which is legally the owner of the shares, does not know the identity of the buyer!

For close to two decades NICIL has acted like it does not know that it is subject to an Act called the Companies Act with which it ought to, but does not comply. As a result, NICIL has practically zero experience in complying with the law and may need to be reminded that the certificate representing the 20% shareholding in GT&T is in fact held by NICIL which must also sign the transfer form to pass ownership to the Chinese company.

The CEO of NICIL is Mr Winston Brassington who has been at the centre of all the major sales/disposals of state assets and who has impressed the Guyanese public with his ability to carve up transactions in which the Guyanese taxpayers are often the biggest losers. Except that in the case of the Berbice Bridge Company, Mr Brassington’s iconic show of private-public sector partnership, the big losers are both taxpayers and commuters. The taxpayers suffer as a result of the excessively generous concessions which have been given to the investors in the Bridge Company, and the commuters, as a result of some of the most exorbitant rates for a river crossing anywhere in the world. Just by way of reminder, NICIL recently waived hundreds of millions of dollars of interest (payable to NICIL) so that the private investors could be paid theirs!

Apparently intending to impress the media, Dr Luncheon whose performance as Chairman of the National Insurance Scheme has been exceptional for all the wrong reasons, volunteered to the media that the Chinese company had “conducted its due diligence and decided to purchase the shares.” What the public needs to know is not what the Chinese did but what the government did in arriving at a fair price for the 4,125 shares which it has owned for more than twenty years. Under a 1991 agreement between the Hoyte administration and ATN of the US Virgin Islands, the government received a 20% stake in the new company that took over the assets and liabilities of the Guyana Telecommunications Corporation in a process that itself raised eyebrows. To put the latest transaction into perspective, what the people need to know is how NICIL/Cabinet arrived at the sale price, not how the buyer arrived at the purchase price.

The changing profile of the international investor
The experience in many countries is that the Chinese – and one assumes that this is neither a phantom nor a pseudonym – are more likely to sell, rather than buy, a pig in a poke. They will have looked after their interest and we ought to have looked after ours. The question is, did we?

Unless Guyana is becoming the playground for Chinese investors, the nationality of the investor is surely intriguing, since we now have a picture of one set of Chinese investing in GT&T and another investing in the competing LTE GoG network. There must be something that the Chinese know about Guyana that the ordinary Guyanese does not, but hopefully it is not too late to learn. It is well known that the Government of China invests abroad, ostensibly through private individuals and companies. With their unimaginable reserves, a managed exchange rate and a colonizing mentality, China has been throwing its power around the Third World including Guyana.

They seem willing to get involved in sugar, bauxite, hydro-electricity, airport expansion, Guyana Power and Light, ferries and bauxite, many of which have benefited the Chinese disproportionately.

Led by Mr Jagdeo, there has been a fundamental shift in the profile of investors in Guyana. The implications for Guyana in the medium term can be fundamental, although this is not to suggest that the GT&T share sale is part of some bigger picture.

The strange silence of the Minister of Finance
GT&T is regulated under the Public Utilities Act, and one wonders whether the government had notified the PUC of the proposed sale of its holding in the company and whether, in view of the nature of the company, the identity of the buyer ought to have been similarly communicated.

Unfortunately, there are too many persons of influence and power who think that the law is an ass, and need not be observed or obeyed. Hence, it may be wrong to assume that the buyer has taken advice that as a substantial shareholder under the Companies Act 1991 (10%) it must give written notice to the company within fourteen days of becoming a shareholder.

Given this scenario it is not beyond the realm of possibility that in doing its “due diligence,” the Chinese may not have met with GT&T and might have relied on assurances from the same Mr Winston Brassington, the second-in-command negotiator-in-chief for the government.

What is more disturbing is that the share sale agreement was concluded on Wednesday April 4, less than one week after the Minister of Finance presented the 2012 National Budget to the National Assembly. By then, the discussions with the Chinese – in which the Minister would have played a major part – must have already arrived at the framework of an agreement including the price to be paid to the government.

But the Minister of Finance chose to remain silent on this major development and the budget he presented did not include any income from the sale of these shares.

NICIL again
The frightening possibility is that this money will be put into NICIL’s hands, later to be paid into the Consolidated Fund only if and when the Board of NICIL – which is chaired by the Minister of Finance and which includes Cabinet ministers and as said above, Dr Luncheon – decides to pay a dividend. The law does allow for the payment of interim dividends by all companies, but if NICIL’s directors choose not to pay any dividends, there is little recourse available short of court action.

Meanwhile, NICIL will be free to spend the $5 billion dollars it receives from the Chinese as it pleases, including on the Marriot Hotel which NICIL is bent on financing whatever the perceived risks associated with the industry and the project. It is clear that NICIL has now abandoned any pretence of being the Privatisation Unit of the Ministry of Finance which ensured that proceeds of privatisation transactions went direct to the Consolidated Fund.

By interposing NICIL in the mix, that direct relationship no longer exists, and Dr Singh as Minister of Finance must wait until Dr Singh as Chairman of NICIL’s board of directors decides to pay a dividend before he could bring any money into the public coffers. That just does not sound kosher.

There is some hope from a precedent from a couple of years ago when dividends payable by GT&T to NICIL went into the Consolidated Fund, bypassing NICIL. Parliamentarians, the public, the University of Guyana and the country’s pensioners await with interest the course of the Budget deliberation and whether the Minister of Finance will follow that course and amend the revenue numbers in the Estimates to include the $5 billion.

If he does not, we know then that the fears that the Minister administers at least two budgets – one for the Consolidated Fund and the other for NICIL – are in fact justified.

The agreement
Now back to the agreement. It was always incongruous for the government to be a player (shareholder) in a sector as well as the regulator (PUC), a principle that applies as much to telephones as it does to the media, or any other business.

On that basis, the sale is welcome, although there are disturbing signs that the previous administration has been paving the way, at taxpayers’ expense, for its associates to enter the sector and enjoy major benefits.

In the disposal of shares, a sensible negotiator would contract a price that is cum div or ex div, meaning whether or not outstanding dividends go to the buyer or the seller. GT&T would be concluding its 2011 financial statements in time for April 30 filing deadline. It will probably have its AGM shortly thereafter at which the question of dividends for 2011 will be considered. Since the government-Chinese agreement is made in 2012 the government as the seller could have done one of two things about the 2011 dividends: agree for the buyer to receive the dividend but paying for this in the purchase price, or selling the shares while retaining the right to the dividend.

Dr Luncheon did not mention whether this was considered, nor, unfortunately, did any of the media ask him the question.

We will look at this in the concluding part next week.

GT&T share sale line runs cold

The deadline for submission of tenders for the purchase of the government’s 20 per cent stake in the Guyana Telephone and Telegraph (GT&T) company is fast approaching. Indications are that with the exception of workers’ groups, there is remarkably little interest in an investment that has produced for the government huge returns in dividends, fees, taxes and other income. At one and the same time, government’s shareholding in GT&T has been by far the most successful investment ever undertaken by the government and also the most criticised, controversial and in some quarters, most condemned.

Contrast this with bauxite, which is largely a net beneficiary from the state with all the concessions and remissions it receives, and Barama in forestry and Omai in gold, which never reached the threshold for the payment of corporate taxes, all of which have received far less attention and scrutiny. Indeed, but for the harm done to the industry by interventionist politicians, sugar, also the recipient of billions of dollars of state funds, might itself have attracted little public attention. In terms of public attention, scrutiny by the fiscal and industry regulators, presence in the courts and the object of political exchanges, GT&T is in a class of its own.

No huge interest
It might have been expected then that the decision by President Jagdeo that his government had decided to dispose of its shares in GT&T would have attracted huge interest. And that NICIL, which serves the government in so many and diverse ways, would have been more active in the exercise. Despite reservations in many quarters, President Jagdeo seemed determined to divest the shares, “[hoping] that the money that we can realize from this sale can go back to developing the ICT sector; that we can get more people access [to the internet]… we are trying to get more computers [and]… bring down the cost of bandwidth.”

Why has there been so little interest and how will Jagdeo now find money to deliver on his promises? Experience has taught us that Jagdeo’s financial management must not be under-estimated; that he has the ability to make money turn up from unknown and/or undisclosed sources, of which the unconstitutional lottery funds are only one of the better-known examples. It is therefore unclear what effect any delay on the sale of the shares will have on Jagdeo’s plan or how he will magically pull money from one of those hats to buy the computers and meet the other uses of the sale proceeds. Indeed a number of computers have been acquired and made ready for distribution, although the exact source of those funds has not been disclosed. If they were not included in the 2010 Budget, then it has to be assumed that it is not from the Consolidated Fund.

The reason for the lack of interest seems to have been driven by several factors, but for the present, the following are considered critical: 1. changes in technology and the marketplace; 2. the government’s direct participation in the sector; 3. the announced intention to liberalise the sector; and 4. a price for the shares.

Not only has the newcomer Digicel demonstrated its marketing capabilities but together with a limited opening up of the market, it (Digicel) has proved a worthy competitor and has challenged GT&T aggressively for market share. This means that GT&T is no longer a giant which prick it as you might, you could not harm or hurt. The advent of Digicel changed that. Compounding the challenge is new technology that allows subscribers to make international calls at a fraction of the cost charged by the company. It is a safe assumption that the medium of choice for a large share of international telephone calls is Skype, a US-based service that is used directly or indirectly by thousands of persons in Guyana.

The result is that the company’s international long-distance revenue has declined from $10.1 billion in 2007 to $7.9 billion in 2009, a drop of more than 20% in two years. Partly in response to this challenge, the company entered into a joint venture with Telesur of Suriname to link Suriname and Guyana through a state-of-the-art 1,200 kilometre (700 mile) submarine fibre optic cable connected to a worldwide network of similar cables through a landing station in Trinidad. The new cable offers 3,000 to 4,000 times more bandwidth than is currently available through the Americas II cable and satellite link.

Any new investor in GT&T is effectively taking a chance that the financial rewards from the new cable and from new products and services it will be offering will stem the decline from one of the company’s most profitable sources.

Government competition
Over the past two years the government has invested hundreds of millions of dollars to land a new fibre optic cable, ostensibly exclusively dedicated to e-governance. By December last year, the government had already advanced about $400 million to a contractor for the installation of fibre optic cables and terminal equipment. Not many people have been convinced by President Jagdeo’s explanation that the cable would be “dedicated purely to e-governance” and the linking of institutions like schools, hospitals and police stations.

Interestingly while the 2010 mid-year report refers to the GT&T cable, there was no comment on the government’s, and it would be wrong to assume that we have heard the last of the government’s re-investment in the sector or its impact on GT&T. One challenge to the government in trying to sell this as a commercial service is the absence of any redundancy in case of failure. That, however, can easily be met by the government compelling GT&T and any other private supplier to provide the government with back-up service.

It has to be remembered too that President Jagdeo has not been entirely unequivocal or unambiguous about the intent of the government with regard to this cable. For example, in comments made to the media in May 2009 on the cable, he spoke of the need to bring down the cost of bandwidth without saying that this was in relation to the government as a user of bandwidth.

The present intention and future use of this cable have unforeseen ramifications for GT&T and therefore both its majority and minority shareholding.

This term has been widely used but hardly defined or explained in relation to the telecommunication sector generally, or GT&T in particular. Many thought it might have simply been the removal of GT&T’s monopoly in relation to certain defined services as was the case with cellular services. The word around is that draft legislation making some sweeping changes is now being circulated and provides for at least two persons with close party connections being granted status as Internet Service Providers. Another significant possibility is that the facilities now owned by GT&T may have to be shared with other service providers. How this encourages innovation and rewards investments is anyone’s guess but until the draft is circulated for wider discussion, it would be difficult to assess its potential impact on GT&T.
For now, it is safe to speculate that if the new provisions adversely affect the existing rights of GT&T, then unless there is agreement on compensation, the matter will end up in the courts.

A reasonable price for the shares
The current shareholding in the company is that GT&T has 16,500 shares and the government has the remaining 4,125. The net assets of the company at December 31, 2009 amounted to approximately $24 billion so that on an asset basis each share is worth about $1.2 million. On an earnings basis using a (technical) price/earnings ratio of 8:1, the share price per share would be about $1.3 million.

But the notes to the financial statements indicate that there are what are called contingent liabilities arising from rulings by the Public Utilities Commission and the Guyana Revenue Authority amounting to several billions of dollars. A potential buyer of the shares would need to look carefully at the financial statements of the company and do an assessment of the likelihood of all or any of those contingent liabilities materialising.

Such an exercise is fraught with some real challenges.

No one buys a cat in a bag. This is not a share sale by the company requiring a Prospectus or an Offering Memorandum with all the warranties, assurances and projections by the company and its directors. Like any ordinary holder of shares in a company, the government could make no representations about the future of the company.

The absence of takers for the government’s shares should therefore not surprise anyone, and least of all the government. It would be strange for it to expect any interest when as the seller, the legislator, the regulator and fellow shareholder it has created such uncertainty and confusion about the company. An investment in the shares of any business is a calculated evaluation about the future. As it is in the case of GT&T.

Those GT&T shares: To sell or not to buy; that is the question

The decision by the Government of Guyana to sell its 20% holdings in the Guyana Telephone and Telegraph Co Limited (GT&T) has caused its fair share of discussion and debate in Guyana. That is not unusual or strange. Ever since the US Virgin Islands-based Atlantic Tele-Network, Inc took over GT&T, it has fascinated, annoyed, excited and generated intense interest among the public. It may have had to do with the process of the sale by the Hoyte administration of the highly profitable, foreign exchange earner under circumstances that still arouse some suspicion. It may have had to do with the revelation that the company was sold with hundreds of millions of Guyana dollars in the bank. It may have had to do with the distrust of multinationals of the late President Cheddi Jagan which seems to have been handed down to his party and some of the Guyanese public. Yet, like it or hate it GT&T has played a significant role in the modernisation of the telecommunication sector in Guyana.

The company boasts of the billions of dollars it has contributed to the national coffers. It is a major employer as well and appears to have had a very good relationship with its workers and their representatives. It has invested hundreds of millions of US dollars in new and modern plant and equipment and its service has reflected continuous improvement which may have been partly driven by the competition from the aggressive and agile newcomer Digicel in the cellular phone market. Of course none of this is due to altruism but to hard decisions about money. The company has also kept our courts busy and its conflicts with the Guyana Revenue Authority are legion.

FITUG and PNCR agree
Now the debate surrounding the company is about the sale of the government’s holdings with the government-backed FITUG and the opposition PNCR arguing against a sale and the government saying it would welcome a debate in the National Assembly. Business Page today considers the offer, which ATN has already refused, and some of the implications for a sale. From a review of my files (in the most innocuous sense of that word), the rights and obligations of the government as minority shareholder were never really clear and that is likely to muddy things a bit.

As a company incorporated under the old Companies Act Cap. 89:01, the company’s shares were under the control of the directors, and like any private company, GT&T was permitted to impose conditions and limitations on the transfer of its shares. Indeed Article 24 of the company’s Articles of Association gave the directors absolute powers to refuse to register the transfer of any shares in the company. Even though the new Companies Act takes a more enlightened view of the right of a shareholder to dispose of his property as he sees fit, sections 334 and 335 of the new act recognise as valid any of the old act’s provisions which may be inconsistent with the new act.

In 2007 I wrote that the government was not as free as it thinks it was to dispose of its 20% holding and that it would have to obtain the agreement of its senior partner if it wished to do so. I still hold that view. Unfortunately, no one appears to have given any attention to that first hurdle.

Ability to pay
The PNCR and FITUG have raised another hurdle and that is the sale of the shares to the employees of the company, which suggests that they are willing and able to pay for the shares, since they must know that the government has abandoned everything else for the maximization of sale price. But the PNCR and FITUG seem to have paid no attention to what a reasonable sale price per share could be. That could be huge. GT&T is in law a private company which means that its shares are not traded on a stock exchange and so the value of the share has to be calculated on what may be considered no better than an educated guess, using a range of factors and making a number of assumptions. Even in the best of circumstances there are at least six factors to be considered, but in the context of Guyana and the company, the number is considerably greater. Yet, one cannot escape the following six:

1. the nature of the business and the history of the enterprise from its inception;
2. the economic outlook in general, and the condition and outlook of the specific industry in particular;
3. the book value of the shares and the financial condition of the business;
4. the earnings capacity of the company;
5. the dividend paying capacity;
6. the market price of shares of corporations involved in the same or similar line of business, having their shares actively traded on the free and open market, either on an exchange or over the counter.

An uncertain future
While the computation of a price may be considered a mathematical exercise, it is based largely on the future, rife with its uncertainties. Consider, for example, the rapid changes in technology in the telecommunications industry, the not unreal possibility that the monopoly enjoyed by GT&T may soon end and the increasing and intense competition which Digicel poses to the company, and the uncertainties certainly mount up. The fact that ATN refused the government’s offer may very well be an indication that even the principal shareholder considers the future of the company far too uncertain for any further investment. In publicly filed documents the company’s parent has drawn attention to the uncertainty about the company’s licence resulting from action both by the government itself and the regulator. It would have been surprising as well if ATN did not consider that its 80% is as good as 100%. It really does not need any more shares in the company, so why not invest its money elsewhere? That is exactly what ATN has been doing and GT&T now accounts for less than half of the group’s revenues. The rest is all outside of Guyana.

So how much is one GT&T share worth? The Earnings per Share in GT&T exceeds $200,000 dollars, and if one values the share at a conservative P/E ratio of 8:1, the value per share is over $1.5 million. And if one uses the book value of the net assets of the company, which is generally considered a minimum price, the value per share is about $1.4 million. These are extremely rough numbers and it is likely that the value of each share on a more sophisticated basis, all things being equal, is an amount well outside the reach of the average worker in the company or the average member of the public.

Why sell a good thing?
Another issue is whether the government should be selling its interest in a company which has a guaranteed rate of return of 15% and which enjoys a monopoly in a still developing sector. There are arguments on both sides. The returns are clearly lucrative and the government does not seem to have any urgent need for funds given the continuous windfalls from VAT. Guyana must be one of the very few countries in the world which is recording increased government revenues in the crisis-prone 2009. High inflows from the Low Carbon Development Strategy are predicted, there are no pressures from its workers and the IDB seems to be as generous as ever, even in the face of increasingly costly and pervasive corruption in the public sector.

Will the government’s proposed regulations for the sector which it has so far not made available to the public have an adverse impact on the company and its share value? Is the proposed share sale more a jump-ship and the real intent of the government is to cash in while the going is good? These questions alone should cause potential buyers to hesitate and leave the government stuck as an unwilling partner to ATN while the value of its holdings depreciates.

On the other hand, the government has been remarkably negligent in managing its investment in GT&T. Under the Government of Guyana-ATN Agreement the government is entitled to board representation consistent with its percentage ownership, meaning that it can nominate two directors. Incredibly, the government has not taken up even one of these positions for the past five years, but yet complains about ATN’s management of the company. It is mind boggling that our NICIL/Privatisation Unit could have been so busy over the past five years that it was unaware of this gross dereliction of its duty to the nation to protect all the country’s investments.

What future for the shares?
It seems highly unlikely that the sale of these shares will take place any time soon. The government has clearly not thought through or prepared itself for what is a major and high value step; the calls by FITUG and the PNCR seem to be based more on emotion and politics than on the consideration of hard facts; and the potential for ATN to raise challenges cannot be underestimated. The government will continue to do nothing while the President spends the next few months looking for money from the ‘rich’ countries leaving the company to manage in the face of increasing uncertainties. If this government cannot mend an arrangement with a partner of close to twenty years, it is hard to see how it will deal with all the environment-friendly international businesses the President hopes to attract.