Two events usually attract misinformation, once known as propaganda. These are wars and strikes. In a war, each side pushes information to show that it is doing better than the enemies – in fatalities, losses and territory. In a strike, the employer understates the support for the strike while the workers’ representatives overstate that support and the moral imperatives of their cause. In similar vein, I have seen numbers cited by some closer to the facts, such as the Chief Education Officer and the leadership of the Teachers’ Union.
In the case and context of the current strike I went to sources I consider most objective, if not always very clear – the 2024 Estimates. From these, I could make some reasonable assumptions and deductions on the affordability of any increase. What I also found is that some of the numbers cited by some non-associated persons like Dr. Tara Singh were off the mark by quite significant margins. My overall finding is that the Government can pay much, much more than the 6.5% it has offered teachers.
I say this even as I concede that the Estimates are not the easiest of documents to read and that the reader has to plow through dozens and dozens of pages and make rough assumptions arising therefrom, including how the averages pan out. Here are some of those numbers. The provision in the 2024 Estimates shows an increase in the allocation for Wages and Salaries for teachers, exclusive of related overhead costs, of 25% over 2023. Of course, the number of teachers is also expected to increase, even after natural attrition. The crude average annual increase in the number of teachers over the past three completed years was approximately 9%. The projection for 2024 is 14% of which we can assume that the significant increase will come at the beginning of the new academic year in September. From this, we can deduce an increase in the effective number of teachers for the school year to be about 5%.
Let us then assume that the Government is unwilling to make this up via savings from part of the total capital budget or by way of supplementary appropriation, the 2024 Budget appears to allow a 20% increase to the teachers for 2024. Except for some related costs that are ad valorem, the other charges are already provided for in the approved Estimates.
The Government can afford this and the teachers deserve nothing less.
Time for Guyana to have a code of Corporate Governance
Introduction
For decades, the captains of Guyana industry – almost all men – have resisted the introduction of a binding code of corporate governance. It has not been for want of effort. There have been numerous efforts at the establishment of a code of corporate governance including one by the Securities Council and another by the Private Sector Commission. Neither of these came to fruition and there is now a total void with companies limited to more narrow codes issued for particular sector, or to practices likely to get past a general body of unenlightened shareholders.
In a column I did several years ago, I wrote that the international quest for a modern corporate governance code began in the UK in 1991. Then Pime Minister John Major appointed a committee headed by Sir Adrian Cadbury following a number of high-profile corporate failures which were attributed to poor governance, poor accounting and inadequate disclosures. The most significant corporate failures were the Maxwell Communications Corporation scandal in 1991 which surfaced after chairman Robert Maxwell died in the most unusual circumstances, revealing that he had fraudulently misappropriated hundreds of millions of British pounds belonging to the group’s pension schemes. Then there was the failure of the Bank of Credit and Commerce International which collapsed after an investigation revealed that it had been engaged in fraud and money laundering.
As its formal name implies – the Report of the Committee on the Financial Aspects of Corporate Governance published in December 1992 – the Cadbury Report really had a fairly narrow focus. Its principal recommendations emphasised improving corporate governance and accountability in public companies in the United Kingdom. There was more to follow. South Africa in 1994 saw the King Report on corporate governance, now recognised internationally as perhaps the leading code of corporate governance of any country of the world. Germany published its code in 2002 with Japan following some years later. A code for the US followed the debacle of Enron and WorldCom failures and took the legislative route with the passing of the Sarbanes-Oxley Act (2002).
Particularly in the UK and South Africa, there were iterations and additions in subsequent years with the UK now having a full corporate governance code embodying several other reports while in South Africa, the King Report is now in its fourth iteration.
Guyana’s Experiences
A Business Page I authored years ago had reported that the Council of the Private Sector Commission (PSC) of Guyana on 7 April 2011 had accepted a Code on Corporate Governance which could have some transformational effect on the way Guyana companies are managed. Like the draft Code published by the Securities Council, the PSC’s code did not get far, effectively killed by officers of the PSC itself. As I wrote then, the then Chairman of the PSC was Mr Ramesh Dookhoo, an executive of Banks DIH while Mr Chintamani (DEMTOCO) had been a member of the executive of the PSC. They could not persuade their own companies to adopt the PSC’s Code, with Chintamani pouring scorn on the idea of a mandatory code.
So here we are, decades later with no Code and a PSC that has become no more than ceremonial and largely inactive. What the absence of a code does is allow for poor governance with directors handpicked by an all-powerful chairman who reports to himself and a compliant set of directors. Directors’ turnover is minimal, and it is striking that since their formation, both Banks DIH Limited and Demerara Distillers Limited have been firmly controlled for decades under hereditary fiat by four men – Peter D’Aguiar and Clifford Reis at Banks DIH Limited and Yesu Persaud and Komal Samaroo at DDL. Independent directors are almost invisible and ineffective, serving at the will of the Chairman while the executive directors are not subject to election or re-election. The shareholders with any real voice and influence are the Institutional investors but these operate as cartels, even at the cost of their own interest.
Guyana’s Failures
Guyana too, has had more than its fair share of failures with Globe Trust and CLICO as standouts, but Guyana Refrigerators, Stockfeeds and many state-owned companies have also suffered. Yet, no meaningful action has been taken to strengthen corporate governance and to prevent a recurrence. These are not simply issues for the seven days’ news cycle. Companies will fail because of the type of industry they are in, because of technological advances and because of particular unique circumstances. But good corporate practices, careful planning and open communication do help in anticipating and preventing failures.
Boards have made too many costly blunders because of directors’ failures such as DDL investing in facilities in a dry state in India and Banks DIH making some costly strategic and tactical blunders, all with total immunity. This should not continue. There is a complete disconnect between a country determined to take its place among the richest in the world, tolerating corporate government practices that are backward, ineffective and which stifle growth and development.
Conclusion
A code not only sets the minimum standards of governance in companies but also requires them to report on how they apply relevant corporate governance principles, and also to be responsible enough to give an explanation to the shareholders of the reason(s) if they deviate from the code – the ‘comply or explain’ principle. The code also calls on companies to provide information on their corporate governance policies and principles at the request of shareholders for further evaluation, the very things DEMTOCO said they would only provide if the law so required it.
None of the senior members of the government have any corporate experience and would seem ill equipped to appreciate how the absence of a corporate governance code retards the development of the country. Yet, it is a great opportunity for the Minister of Business to convene a meeting of the Private Sector Commission and the securities council asking them to set up a committee with the express purpose of formulating a code of corporate governance. Let the Private Sector explain why it is not supportive of such a code.
The Ali Administration has been promising continually that an independent, competent Petroleum Commission will be appointed to oversee the operations of the oil and gas sector. But like it has done in relation to the confirmation of the constitutional offices of Chancellor of the Judiciary and the Chief Justice, promises by the Administration seem not to count for much. The most immediate breach and broken commitment is of course in relation to the constitutional guarantee to workers that they have a right to free collective bargaining. Parents are painfully aware that that right is openly denied to teachers and worse, they are being victimised for exercising another constitutional right – the right to strike.
While these brazen acts by the Government cannot be exaggerated, it defies logic, commonsense and experience to belief that a political overseer of the dominant sector of the economy is better and more effective than an independent body made up of professionals. Worse, it is costing this country dearly in several ways. Surely such a body would have done a better job overseeing the operation of the 2016 Agreement under which ExxonMobil is allowed free rein to do whatever it pleases. Had we had a petroleum Commission, Exxon would not have been allowed to get away with overstating of its pre-contract costs; or in flouting the provisions of the Agreement regarding the audit of petroleum operations; the writing-off of US$211 Million in unsubstantiated expenses, or engaging and colluding with the government in violation of the Agreement with respect to the gas-to-shore project; or in violating the implied conditions regarding ring fencing.
The Vice President’s performance
All those violations are possible and permitted because a) the Government has for some reason reneged on its commitment to renegotiate the 2016 Agreement, b) is seen as a walkover, and c) not even capable of achieving the lesser standard of better contract administration. It is clear that the President did not appoint Mr. Jagdeo to oversee the oil sector: What is more likely is that he appointed himself, flexing his muscles as the General Secretary of the PPP/C. But who else can be responsible if not Jagdeo? Put under the microscope, the vice president’s performance in the oversight of the sector leaves a whole lot to be desired. This became so painfully obvious in an answer he gave to a newspaper reporter at his weekly press conference held at the office of the ruling party of which he is the general secretary.
Here is the question posed by a female reporter who from Mr. Jagdeo’s response came not from the Kaieteur News but from Mr. Glenn Lall. “Last week you said Exxon has $20 billion in assets out there which can be sold to take care of an oil spill in the event it occurs. Can you list the assets they have that equal twenty billion.”
My instinct was to quote Mr. Jagdeo’s response in its entirety, but I was not sure that that would get past the editor. Whether the tone of his answer was because it was a woman who asked the question or because she came from the Kaieteur News, or he wanted to impress the audience, is not clear.Yet, his response exposed his own limitations in oil and gas than was ever so glaring before. To parody Winston Churchill, never before have so many mistakes been made in so few words by such an elevated office holder. He asked and answered in the negative the question whether the reporter had read to balance sheet of Exxon, advising the reporter to look at the balance sheet but then demonstrated his own unfamiliarity of those numbers but diverting his audience to Hess and Chevron. For his information, one looks not only at assets but also at the liabilities. At 31 – 12 – 2023, the net assets of Exxon Guyana amounted to US$7 Billion.
His statement of a merger between Chevron and Hess is also wrong. It was a takeover by Chevron.
It was too much to expect vice president to know that if there are changes in the composition of the contractors, the agreement required that such assignment be permitted. Given the challenge by Exxon to the deal, it seems clear that Hess has been pushed aside, in fact if not technically.
The errors mounted. The VP challenged the reporter’s knowledge by asking and telling her that she does not know the value that Chevron placed on Hess, and that that figure was US$60 Mn. Wrong again, except if he disregards the small matter of US$7 billion. Then he goes into a story about the stock market, Hess’ global assets and how much is attributable to Guyana which with his fuzzy math, he put at US$30 billion. In fact, the balance sheet to which he pointed the reporter suggested that even the gross assets did not come close to the number, let alone the net assets, which was about one-tenth of that number. Yet, Jagdeo claims that given the “value that Chevron placed on Hess’ shares in Guyana, you have a $100 billion company in Guyana.”
To conflate stock market price with asset price is not something one expects from a former Finance Minister.
So, he completely evaded the question about Exxon’s US$20 billion and gives a lesson to the reporter that is wrong. But there is also a fundamental issue – Jagdeo expects the book value of an oil company to pay for the environmental disaster involving those very assets. Perhaps he was talking rather than thinking. With this display, clearly Mr. Jagdeo cannot perform as an oil minister, let alone a substitute for a Petroleum Commission.
Today’s column reviews the Annual Report – including the financial statements – of Banks DIH Limited, a group of companies comprising the food and beverage giant and Citizens Bank Limited in which it has a 51% interest. A new addition to the group is Banks Automotive and Services Inc. which is a 99.99% holding of Banks DIH Limited. An old member of the group Caribanks Shipping Co. Ltd. is no more. Today’s Commentary will discuss both the company and the group but will be clear to distinguish between the references.
In the year ended September 2023, the Group recorded a Profit before Tax (PBT) of $14.509 billion, an increase of $1.111 billion or 8.29%. The Profit before Tax for the Company was $11.393 billion, which means that the company accounted for approximately 78% of the group’s PBT. The new company reports revenue of $170.9and Profit before Tax of $9.2 million. Those figures should be regarded with caution. The spanking new building across Thirst Park is actually owned by Banks DIH and the operational management is also conducted by the parent for a pepper corn charge – distorting the economic performance of the new kid.
Source: Annual Report 2023
Dividends and share price.
The directors recommended a total dividend for the year of $2.20 per share resulting in an overall cost of $1.870 billion. CEO and Chairman was keen to highlight that the dividend cost increased by 10 % but steered shareholders’ attention from the fact that the company has one of the lowest (about 20%) payout ratios of companies among Guyanese companies. The Chairman should not therefore be indignant that the company’s share price has slid recently. In a perverse way, a slide in the share price actually helps the dividend yield and makes the shares more attractive. Dividends have been a sore a point among shareholders for several years, both at annual general meetings and, I understand, in direct communication with the company.
Source: Annual Reports of Banks DIH and GASCI website
This stinginess is also reflected in two other numbers computed from the financial statements, which this columnist has found most interesting. Measured by retained earnings in relation to last year’s dividends paid, the company has 29 years of dividends locked in and out of the reach of shareholders. The company has a cash hoard of more than $19 Billion dollars and year after year has a positive cash flow, even with capital expenditure financed from current operations. Public companies are exploiting the lack of opportunities which is small shareholder has at her disposal for alternative investments.
The problem Guyana has with public companies is the incestuous relationship which the main institutional investors have with their main boards, a feature of the Banks, DDL and the Beharry groups. There is no way that the main shareholders of the DDL and the Banks Group will go against the wishes of the principal or controlling shareholders or personalities. For the record, the substantial shareholders are the Hand-in-Hand Group, Trust Company, Demerara Life and Banks Holdings of Barbados. In terms of personality, the Chief Executive has an interest in less than one third of one percent of the total shares but seems to enjoy a lifetime appointment, answerable to no one but himself.
Election of directors
Sharing a practice common to many of the local companies, only the non-executive directors are subject to reelection, which in my view is a violation of the Companies Act. In violation of good corporate governance, the majority of the directors of the Banks board our executive directors who are not subject to shareholders’ oversight. And even those who are subject to re-election can hardly be considered independent.
New direction
The board has decided that the model which has worked for decades must be changed and has decided that this company will now become a subsidiary in which individuals and companies will own no shares. This is an absolutely logic-defying move and will have consequences for shareholders. The company with all the retained earnings will become a private company in which existing shareholders will have no interest or voice. It does not appear that this initiative was properly thought out and should be revisited.
Re-routing transactions through Florida
The Company’s and the Group’s purchasing policies have always generated interest, but one particular transaction has put these under microscopic review. It appears that for several years, the Company has unnecessarily re-routed business transactions through a small Florida operation with a share capital of less than US$10,000. The principal of the Florida company it seems has close to 600,000 shares in Banks. Banks Guyana sources alcoholic beverages from a manufacturer in Netherlands and by extrapolation, paid some G$562,123,894 or well over US$2 Mn. in commission to the Florida intermediary.
There is no doubt that Banks DIH is a blue-chip company but with major issues and concerns. Shareholders need to take both note and action.
Many years ago, the PPP administration sort to make the issue and investment of shares in public companies an attractive proposition, exempting from capital gains tax the gain any transfer of shares. That is on top of a change in the law during the Desmond Hoyte administration when dividends paid on shares in Guyana companies were made nontaxable. We also saw the advent of the Stock Exchange in 2003.
This second Economic Commentary looks at the more recent performance of the Guyana Stock Exchange measured by what is called the Stock Exchange Index or in Guyana’s case the market capitalisation, measured by adding the total of the issued shares of each of the companies whose shares are traded on the Exchange times the unit price for those shares. By this measure, the market capitalisation at January 2024 was $795,207 million, down 25% from a high of $1,062 213 million at July 2022. As stock exchanges go that is quite significant, made worse by the fact that public companies, particularly the larger ones, have been reporting massive increases in profits.
Trying to put this into some kind of context is equally bewildering. Between January 2021 and July 2022, the market capitalisation had increased from $397,067 million, translating into an increase of $665,146 million or 68%. It is difficult, perhaps impossible, to identify let alone justify the circumstances accounting for this meteoric rise and Icarian tumble. What is not difficult is to understand the impact on those pension funds and other institutional investors, especially those which had adjusted their investments and calculated their actuarial assets and liabilities based on July 2022 balances.
The six companies that mirrored these changes are listed in the Table below. As can be seen, the largest movement between January 2021 and January 2024 are Demerara Bank Limited by an unbelievable 301% followed by Demtoco and GBTI in treble digits, Banks DIH Limited (97%) by DDL (79%) and RBL 12%.
Source of Information: Guyana Stock Exchange Website and Public Companies Annual Reports. Stated in Guyana Dollars except for Percentages.
Between July 2022 and July 2024, the price of the shares in Demtoco and GBTI had a more terrestrial growth of 6% and of 9%. For the others, the slide was: DemBank was 28.7%, Banks was 39%; DDL was 48.8% and RBGL was 13.6%.
Because of the lack of investment opportunities, and the total absence of new shares over more than 25 years, shareholders tend to hold on to their shares and not many shares change hands. Had this not been the case, the logical thing for small shareholders especially to do would be to sell their shares while the price is still relatively good. One sympathises with those shareholders who did not cash in on the high prices at July 2022 and now see the value of their shares in many of the companies having fallen by significant percentages. The hope for a quick recovery is to expect more on sentiments than objective fundamentals such as higher dividends. .
Dividend payout
I previously commented adversely on the low payout ratio of dividends to market price which in the case of the twins – Banks DIH and DDL – are some of the lowest in the country. There are two consequences of this stingy dividend policy: a low dividend yield and a high level of retained/accumulated profits. Of our top six companies DDL has the worst dividend yield (0.5%) with GBTI and RBGL – two banks at 1.6%, while Demerara Bank is 0.6%. A decent dividend yield should be around 2.5% – 4 %, depending on the maturity of the company, among other factors.
A low dividend yield should affect share price since the company is not an attractive proposition for persons hoping to earn dividend income. That’s the type of thing that no chairman does not ever raise at shareholders’ meeting or even want its small shareholders to know.
The other consequence is that the company does not ever need to raise by the fresh issue of shares or develop a good mix of financing from equity, long-term and short-term debts. There is a rule of thumb that the company can have debt equivalent to four times equity. But instead, our public companies use shareholders’ funds to finance capital expenditure. For example, DDL ten years ago, had $4.7 Bn in debt. Now it is nil. The repayment of those debts and subsequent capital expenditure have come from shareholders’ funds.
Let us take one other metric as a measure of a company’s dividend policy. And that is the number of years of most recent dividend cover measured by the distributable accumulated profits. Meaning that even if they make no profits for those years, they would still be able to pay a dividend. Again, it is DDL with the most dividend cover in reserve (35 years), followed by Banks DIH (29 years), Dembank (24 years) and GBTI (19 years).
Table showing changes in Retained Earnings and Dividends Paid Performance Summary
Source of Information: Guyana Stock Exchange Website and Public Companies Annual Reports. Stated in Guyana Dollars.
Shareholders have to demand more from their directors and the so-called independent and institutional directors must show some regard for the small shareholders.
Next week, we do a detailed analysis of Banks DIH Annual Report for 2023.
