There have been several comments on the statement by President of the National Gas Company, Indar Maharaj, in this space last week, that the state-owned natural gas distribution company intended to price the Initial Public Offering (IPO) of shares in Phoenix Park Gas Processors at below their cost price.
For those new to the story: in September 2013, NGC acquired the 39 per cent stake in Phoenix Park held by US oil giant ConocoPhillips for US$600 million ($3.84 billion).
As part of the current administration’s divestment programme, around the middle of last year, NGC proposed to sell 75,852,000 shares in the holding company named TTNGL at $25 per share, representing a 49 per cent stake in the company. That proposed IPO of Phoenix Park shares would have raised $1.89 billion, which would have meant that NGC would have recovered almost exactly what it paid ConocoPhillips, given that it was only selling 49 per cent.
In January, having done some research into the Mont Belvieu prices of propane, butane and natural gasoline (Phoenix Park’s three products), it struck me that NGC was setting itself up for failed IPO if it opted to return to the local stock market this year with a $25 per share IPO price. And I expressed that view in three consecutive commentaries in this space starting with, “Will lower product prices affect Phoenix Park IPO,” on January 22, continuing with, “Is NGC approach in investors’ interest on January 25, and, “Is sharing state wealth a bad thing? on January 29.
The premise of my three January contributions was that T&T’s institutional and individual investors would have little appetite for the Phoenix Park shares if NGC and its owner, Corporation Sole, offered 75.85 million shares for sale at $25.
But there would be significant appetite if those shares were sold at a price that was more reflective of the decline in Phoenix Park’s product prices.
In the January 29 piece, I wrote: “...If NGC sells 75 million shares at $20 at IPO, it earns $1.5 billion at the IPO. But if those shares then go to $36, NGC’s remaining shares (about 225 million) would be worth $8.1 billion.
“But if the IPO starts at $25 (raising $1.89 billion) and declines to $22 a year later, NGC’s remaining stake would be worth $4.85 billion).”
In the January 22 edition, the views of the NGC president and the Minister of Finance, Larry Howai, were sought and reported faithfully.
In January, both men, by their statements, suggested that there would be no deviation from the $25 per share price aimed at raising $1.89 billion.
Thankfully, good sense prevailed and the opinions expressed by Mr Maharaj last week in this space indicate a change of thinking that brings him in line with my own views.
But that position—that it is better to sell the shares now at a price that reflects Phoenix Park’s product prices—does not seem to be widely held.
Mary King, in a letter to the Business Guardian editor published on page 10 of this edition, argues: “To sell at this time of uncertainty and of low prices below clearly what is the market value of the shares is financial irresponsibility, if not an attempt to provide a steal of a deal to potential investors.”
And I got this response from someone whose intellect and communications skills I have grown to hold in high regard.
“The editorial in the May 28 Business Guardian confirmed what I have been warning the citizens of Trinidad and Tobago about for months. This is yet another wake-up call for Trinidad and Tobago.
“The President of the National Gas Company (NGC) has confirmed that the value of the shares of Phoenix Park Gas Processors Limited (PPGPL) has dropped since they conceptualised the IPO of PPGPL.
“NGC has now confirmed that it is expected that the price that they will offer PPGPL's share at, will be less than the price at which they, (NGC), bought it in September 2013.
“This confirms the ‘fire sale’ of a very valuable state asset by NGC and the Government of Trinidad and Tobago. They are selling assets at less than the value at which they purchased them (only a short time ago). Our valuable state assets should not be the subject of ‘fire sales.’
“Furthermore, it is stated that the money earned from the IPO of PPGPL will be used to ‘fund the shortfall between Government's revenues and its expenditure.’ This was stated by Kamla Persad-Bissessar, the Prime Minister.
“What this means is that the Kamla Persad-Bissessar Government is funding their expenditure, in an election year, by selling off valuable state assets in a ‘fire sale.’
“The sale of valuable state assets should not be done when their value is lower than their potential value and furthermore, the revenue derived from any such sale should be used as investment for the future generations and not squandered by a Government to fund its expenditure in an election year.
“Do not forget that the Kamla Persad-Bissessar-led government has already been found to have taken unprecedented dividends from NGC of over $10 billion within the past couple of years. Again, this was used to fund recurrent expenditure and not invested for future generations.
“This Government should not be allowed to sell our valuable assets in fire sales. Citizens must be alert and call upon this Government to halt with the proposed IPO of PPGPL a matter of days before a constitutionally due general election.”
The letter was written by PNM Senator, Stuart Young, who is an attorney.
With respect to the positions espoused by Mr Young and Mrs King, if the NGC decides to sell the shares at the IPO at a fire sale price, who benefits?
It seems quite evident to me that the institutions and individuals who invest in the shares will eventually benefit.
Shares in the Phoenix Park IPO are not going to be sold to a small cabal of UNC supporters or to foreigner individuals and institutions. They will be offered to T&T citizens and residents as well as to the country’s pension plans, mutual funds, trade unions, companies, commercial banks and the National Insurance Board.
If the IPO is a success, and the offer is oversubscribed—as the First Citizens IPO was—then the Phoenix Park share price is likely to increase sharply in its first six months of trading. This will lead those who are looking for short-term profit to sell their shares, which will increase their wealth.
Those who hold the shares for the long term are likely to benefit even more as Phoenix Park’s revenues and profits increase over time when its product prices improve.
And then there is the twice-yearly dividend the company will distribute to its new owners, which according to the NIB executive director is equal to a dividend yield of more than 7 per cent.
Those who participate in the Phoenix Park IPO are likely to receive both capital gains and a steady stream of dividends for years to come, which would increase the wealth of both the country’s institutions and individuals.
Is transferring wealth from a state-owned company to the country’s institutions and individuals bad public policy?
And even if NGC sells the IPO shares for less than it paid for them, if the share price increases to more than $25, all of NGC’s shares in Phoenix Park would be worth more at that point. It is important to remember that NGC was a 51 per cent shareholder in Phoenix Park from its inception and that subsequently some of those shares were transferred to National Enterprises Ltd in exchange for shares in NEL.
It is my view that there is nothing wrong with a fire sale if the entire country benefits—as is likely to happen if the country’s financial institutions and thousands of individuals buy the shares.
What’s wrong with providing people looking to get on the first rung of the property market with a “steal of a deal” that increases their wealth? If the IPO comes off this month, it is also well-timed to address some of the liquidity challenges that will result from the payment of back pay to thousands of public servants, teachers and UWI workers.
