Business Page is dedicated to providing objective information and opinion on issues of interest to the business community and the public at large. The articles in Business Page are prepared and contributed by Christopher Ram who is the Managing partner of Ram & McRae, Chartered Accountants, Professional Service Firm. This and previous columns can be found at www.chrisram.net
Introduction
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.
