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Lagniappe

Andre Bagoo: TT's Phoenix Park on the rise?

WHEN THE PHOENIX Park initial public offering (IPO) was launched on Monday, Minister of Energy and Energy Affairs Kevin Ramnarine called the IPO “historic” saying it will bring about a “shareholder democracy”.

Minister of Finance and the Economy Larry Howai said it was a “win-win-win” for the Government, for the National Gas Company (which is offering up its stake in the company) and for the public.

“This is a historic event for the local energy sector, for the local financial community and for the citizens of this country,” said Roop Chan Chadeesingh, the chairman of the NGC at the launch, held at the plush fourstar Hyatt Regency hotel, Portof- Spain. “After more than 100 years of hydrocarbon production, individuals are now able to own a direct stake in the fortunes of this most important sector of our economy.” But is this latest IPO a case of a phoenix rising? Beneath all the hype, views are mixed.

State Funding, Corporate Governance In the first place, the Phoenix Park IPO is not really an IPO of Phoenix Park Gas Processors Limited. Rather it is an IPO of the entity known as Trinidad and Tobago NGL Limited. The NCG is making 49 percent of its ownership of NGL available to the public for investment via the IPO.

NGL holds the 39 percent interest in Phoenix Park Gas Processors Limited which was acquired from ConocoPhillips Trinidad and Tobago Holdings Inc by NGC in 2013. A total of 75,852,000 class ‘B' ordinary shares are being offered at $20 per share. The closing date for subscriptions has been set as September 9.

Economics and Finance Lecturer at the University of the West Indies Dr Vaalmikki Arjoon says the impact of the IPO on the economy will be multi-dimensional.

One clear benefit, he says, is the acquisition of a source of financing for the State.

“Firstly, the Government and the state-enterprise in itself is going to acquire financing from a different source to meet whatever investment obligations they may have,” Arjoon tells Business Day in an interview on Monday.

“They will be able to finance whatever projects that they may have going on in the near future, in particular the short-term.” He says there will be benefits on the level of the equity market.

“Secondly, it is going to make our equity market more attractive to international investors,” Arjoon says. “It is going to help develop the equity market. There will be more companies listed, so the size is going to be bigger. The more companies that are listed on the stock market, the more State-enterprises that go public and list their shares on the Stock Exchange, the more attractive our market will be to international investors, which means more capital inflows into Trinidad and Tobago. So we have nothing to lose and everything to gain by that.” The lecturer also sees improvements in efficiency.

“Thirdly, the liquidity of the market is going to be even better,” he says. “We will be looking at a better-functioning and a slightly more efficient market in the future.” But he also argues that the move will result in improvements in corporate governance.

“It is going to enhance corporate governance as the objectives of the shareholders are going to be met in line with the objectives of the board of directors,” Arjoon says. “It is going to resolve what is known as the principal/agent problem in economics where you find that the directors or senior members of the company may have their own agenda compared to that of the shareholders. The board of directors' objectives will be aligned with those of the shareholders, which primarily involves the maximisation of dividends.” But Arjoon notes there are challenges in the long-term, such as what will happen to the shares once they hit the secondary market, when the IPO is closed and the dust settles.

A ‘SHARE DEMOCRACY' OR SHARES FOR THE BOYS ? The secondary market is also the zone where trade unionist and politician David Abdulah identifies problems. For him while the IPO - as well as the First Citizens Bank IPO of 2013 - have been hailed as giving citizens a chance to own shares in the country's energy industry, they in fact open the door to foreign ownership of entities that were previously State-owned.

“There is no reason why foreign investors will not be able to eventually acquire those shares, on the secondary market,” Abdullah says. “We may end up losing it to foreigners.” He suggests foreign multi-national companies should, instead, be encouraged to offer shares in their operations on the local stock market. This, he says, would be a true reform, taking us closer to the ideals meant to govern an independent nation.

“Why don't we encourage them to put these shares on the local stock exchange?” he says.

“This would boost our market and create some degree of local ownership of energy assets which are foreign owned. It would give nationals that our patrimony. We will have some ownership and control of our resources.” For persons like Abdulah, the Phoenix Park IPO is based on a false premise. He says State entities are already, by definition, owned by each and every citizen equally. An IPO, he says, distorts this, allowing only wealthier citizens to grab a direct bigger piece of the pie.



“The marketing for the IPO is based on a false position where they are saying this is an opportunity for you to own,” the trade-unionist says. “But the fact is that every citizen owns an equal share in these companies because they are State-owned. We are being sold what we already own.

This is going to be an opportunity for a redistribution of wealth whereby those who have a lot of money will end up with a lot of shares, disproportionately. In truth, it is going to create greater inequality and injustice.” While Howai on Monday said he had confidence in the Securities and Exchange Commission to probe the FCB IPO - which came under scrutiny because of a transaction involving a bank employee and possible conflicts - Abdullah does not share the same view. For him the fact that the SEC probe, into a single transaction out of 12,000, is still ongoing is cause for concern.

“The FCB IPO has not yet be resolved,” he says. “There ought not to be an IPO when this other cloud is still lingering.” Abdulah said while the raising of financing will be a clear advantage, it is also a disadvantage.

“This really is a sale of State assets, a selling of our crown jewels,” he says. “This is to raise money to finance a fiscal deficit and such an arrangement should never happen when oil and gas prices are low. An arrangement like this should not take place weeks before an election. This is obscene.” There have been questions as to whether money will be lost due to the IPO. At the launch, Howai assured no losses will be incurred.

“The sale price plus the dividend plus the value of what we have certainly shows that the NGC itself will not be losing,” the Minister said, without providing details. “Of course there are other technical reasons why this particular IPO makes sense, particularly given the market rules which apply to the accounting and valuation as we go forward.” More specific was interim NGC president Indar Maharaj, who gave figures indicating the IPO could raise between US$230 million to US$300 million.

“NGC will not be losing any money as a result of this sale,” Maharaj said. “I will provide some quick facts to support this.

In 2013, we paid US$600 million for Conoco Phillip's 39 percent interest in PPGL, that means the acquisition that we are making available for investment today cost NGC US$294 million to procure.

NGC expects to raise about US$230 million from the IPO when fully subscribed. If we add dividend payment that would have been generated by this 49 percent over the past two years (US$71 million) we will see that holding the 49 percent for two years and then selling it in a fully subscribed IPO could yield NGC a total of about US$300 million - a little more than what we paid for it. So we are not losing through this IPO.” Ultimately, the new shareholders will bear the risk amid a future made uncertain due to fallen oil and gas prices and a push for fossil fuel divestment. Some have noted profits have moved from US$245 in 2010 to US$166 million in 2014. But others have expressed the view that over the long-term shareholders will gain a good return.

“There are always risks with every investment,” Howai said at the launch. “We see it as having good long-term value for all those who seek to invest in this.

There is no certainty with respect to the returns on these particular shares but in looking at the longterm dividend yield it seems a relatively solid projection in terms of what is expected as the rate return on these shares over a period of time. All of this depends on what happens to global markets and world markets in terms of the products the company sells.”

 

 

Andre Bagoo a Trinidadian writer and journalist. Since October 2006 he has been based at the Trinidad and Tobago Newsday, is a specialist writer covering politics, with a sideline in arts and culture. He is also a poet and fiction writer, and has been published in journals such as The Caribbean Review of Books and the Boston Review . Petroleumworld does not necessarily share these views.

Editor's Note: This commentary was published by Trinidad and Tobago Newsday, Aug 13 2015. Petroleumworld reprint this article in the interest of our readers.

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