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Last Updated: Dec 29, 2011 - 2:18:31 AM |
 Nassau, Bahamas - The following is contribution by the Hon.
L. Ryan Pinder,
Member
of Parliament,
Elizabeth
Constituency, on the
BTC
Resolution
delivered March
21, 2011.
Mr. Speaker …
Today I am honoured to rise on behalf of the good people of the Elizabeth Constituency. I would like to thank my constituents for having the confidence in me to speak on their behalf. Today we find ourselves in this honourable place to debate a resolution that I do not agree with, nor do the majority of Bahamians. This resolution seeks to approve the sale of 51% of the shares of the BTC to Cable & Wireless for peanuts. And I want to be clear to the constituents of Elizabeth and Bahamians at large who might be a bit confused on the unorthodox Parliamentary procedure we witnessed today, there has no been a vote in this Honourable House on the sale of 51% of the shares of BTC as of yet.
Mr. Speaker, if one can separate themselves from the political rhetoric, and look at this deal objectively, it stinks, it is clearly not in the best interest of Bahamians. It is a bad commercial deal, a transaction that is questionable, secretive and tainted by clear conflicts of interest.
Elizabeth’s Reaction
I recently conducted a number of walk abouts in Elizabeth to hear the opinions of the people I represent in this honourable house, and they told me, Ryan, please vote against this, please don’t support this sale, we just cannot agree to the sale of a majority of shares of our jewel of a company to a foreign company. My constituents had deep concerns, and some confusion on the deal. Their concerns can be summed up as follows:
(1) The primary objection was the sale of 51% of our telecommunications company to a foreign company, Cable &Wireless, with a history of trouble in the Caribbean. Selling control was a significant concern.
(2) Too little transparency and too many conflicts of interest. Constituents in Elizabeth questioned why is there a lack of disclosure, why withhold the Memorandum of Understanding for 2 months after it was signed, why does URCA, the regulatory agency, have the appearance of being a Cable and Wireless affiliate? These are all troubling concerns of my constituents, to the point where they don’t trust this deal, they think it was a set up from the beginning.
(3) The Government promises lower rates, but Cable & Wireless is silent. Although lower rates are welcomed by my constituents in Elizabeth, they wonder, why has Cable & Wireless not addressed the issue. When I explained that it is really URCA that sets the rates, and that BTC has in the past been rejected by the regulatory agency to lower rates, they question the sincerity of the Government. My constituents ask, if URCA can approve lower rates, why does the Government keep saying this deal will lower rates, my constituents very astutely observe, we don’t need to sell to Cable & Wireless for lower rates, we just need to have URCA approve it.
(4) Bahamians appear to be shut out of opportunities by this government. My constituents in Elizabeth believe the theme of this Government, especially with respect to this sale of BTC is that “Bahamians need not apply”. Residents of Elizabeth have a tremendous amount of national pride, and the fact that a model has not been proposed to encourage Bahamian ownership of BTC is very discouraging to them. We must do better for our own, we must have pride in Bahamians and their abilities.
(5) Fire-sale price: 51% of the shares of BTC are being sold for less than what BTC assets are worth. I will speak more in detail about the commercial terms of this transaction. My constituents, however, wonder, with all of the upgrades done, with the profits that BTC makes, with the moneys the Government has taken out of the company in the last 2 years alone, how can they only accept a maximum net of $156 million for 51% of the shares of BTC.
So I tell you good people of Elizabeth, I have heard you, I represent your interests, we do not support this deal.
Bad Commercial Deal
Purchase Price - Mr. Speaker, proclaiming that this is the sale of 51% of the shares of BTC for a purchase price of $210 million is an exercise of intentionally deceiving the Bahamian people on the commercial terms of the deal. First, I would like to address the actual proceeds the Bahamian people can expect from this deal. The Government has agreed to sell 51% of the shares of BTC to Cable & Wireless for an aggregate Purchase Price of $210 million. However, when one looks more closely at the terms of the transaction as set out in the Share Purchase Agreement and Shareholders Agreement, it is clear the Bahamas Government is receiving far less than $210 million, and it is equally clear that whatever the Government eventually receives is far less than the value of 51% of BTC.
The Bahamas Government is obligated to leave at least $15 million in cash in the Company, and maybe more. This amount must be deducted from the total purchase price. In fact, I just finished acting as a lawyer on a similar stock sale where the adjustment was for no cash to be left in the company, certainly not $15 million. In addition, the Bahamas Government is obligated to fund pension liabilities in the amount of $39 million. This is your money Bahamians, your asset being sold. Presumably, the $39 million will come from the proceeds of the sale, but it doesn’t matter where it comes from, it is your liability being created, your obligation to make this payment. This has to be deducted from the purchase price to have an understanding of the net amount you will receive in this deal.
Taking into account these obligations of the Bahamian Government, the most the Government will receive is $156 million for 51% of BTC. This is just unconscionable – how can we sell such 51% of such a valuable asset for pennies? Some have estimated the value of BTC to be more than $600 million, and Cable & Wireless is getting a majority of the company for at most, $156 million. This just doesn’t make sense, something is clearly wrong here.
I object to this, and cry shame on the Government for accepting what is clearly below market value for BTC. But you don’t have to take my word for it Bahamas, take the word of what maybe the most respectable financial newspaper in the world. The Financial Times pointed out that the $210 purchase price was below the industry average, meaning that other companies in the telecommunication industry demand much more for their sale. What the Financial Times was getting at is in the sale of companies, value is usually set at a multiple of what the company earns, otherwise known as EBITDA. For a telecommunications company, their value is usually set at between 6 and 8 times earnings.
In BTC’s case, based on the numbers published by Cable & Wireless, this would mean BTC would be valued at between $620 million and $828 million. 51% of the share would then be worth at least between $310 million and $414 million. If it is understood that $210 million is below market value, certainly $156 million is significantly below market price for 51% of BTC. Furthermore, Cable & Wireless just recently sold their Bermuda operations because of “lack of growth and it does not fit it’s business plan.” What is of note, Cable & Wireless received more for the sale of their Bermuda operations than they are buying BTC for if you measure the amount received per subscriber. Cable & Wireless received more for a telecommunications company that was not growing and did not fit in their business plan than BTC that is highly profitable, growing, and clearly fits in their business plan. Cable & Wireless knows they are getting a sweet heart deal, the numbers demonstrate this. Whoever negotiated this for the Government should be fired.
It is clear that 51% of BTC is worth more than $156 million, 51% of the assets alone are clearly worth more. I argue that the cellular license owned by BTC has a value of at least $100 million. Both Cable & Wireless and the Bahamian Government admit to this in the transaction documents for this deal. Cable & Wireless has a 3-year exclusivity on the BTC cellular license, meaning the Government has agreed to not issue another cellular license for at least 3 years to another company. If the Government violates this exclusive arrangement with Cable & Wireless and issues a second cellular license in the first year, the penalty payable to Cable &Wireless by the Government of the Bahamas is $100 million. Why the Bahamas Government would negotiate something like this is unclear to me. What is clear is that Cable & Wireless and the Bahamian Government value the cellular license to be at least $100 million. This would mean that under this Government’s voodoo economics 51% of the other assets of BTC are valued at $56 million.
This is unconscionable - certainly the infrastructure, 91 parcels of property owned by BTC, the 154 leased and licensed property that is part of this transaction, the intellectual property, the network of fiber that connects the islands of the Bahamas, Cuba and Haiti, the other equipment and assets, and most of all, the value of the Bahamian workforce, experience and expertise is worth more than $56 million. In fact, under the Progressive Liberal Party Government, the Bahamas invested $353 million in the capital upgrade of BTC’s communications infrastructure. The PLP condemns the FNM Government for attributing such low value to the goodwill and institutional benefits created on the backs of hard working Bahamians. Bahamian people deserve more respect from their Government, and certainly deserve more compensation for the efforts than $156 million for 49% of BTC.
Use of Proceeds - In 2008 and 2009 the Bahamian Government withdrew over $120 million in dividends that this FNM Government presumably used to prop up its failures in the financial management of the country. Will the same thing happen to the proceeds of this sale? No one has specified what the proceeds will be used for. We heard from the Prime Minister at the FNM’s poorly attended rally just the other night where he said he is selling 51% of BTC to Cable & Wireless because “he needs the money”. It is clear, the Government of the Bahamas is selling 51% of BTC in an act of desperation, selling it for much less than its worth, selling BTC at a fire sale price to compensate for the failure of this administration in the financial management of the country. This FNM Government is acting contrary to the interests and opinions of Bahamians to provide cover for its failures, giving away a national asset in a bad commercial deal, to make up for its failures. This is not good governance, but evidence of failure, failure by this Government to act in the best interest of Bahamians.
Implications of selling 51% - The PLP has never been in favour of selling 51% of BTC in any privatization exercise. We have always advocated for the sale of 49%, and we still do. In fact, even the Prime Minister, before he changed his mind, was against the sale of 51% of BTC. "I will never, never, ever sell the majority of BTC shares to a foreign entity" so said Prime Minister Hubert Ingraham in 1997. The man of his word, apparently is no longer. I also heard a Cabinet Minister imply to Bahamians that there is no difference between 49% and 51%. This was surprising to me, as anyone can appreciate the benefits that come with majority ownership. In fact, when a company acquires a majority interest in a company, they typical pay extra for the shares, what is called a control premium.
See, there are serious implications for selling 51% of BTC. A majority shareholder, in this case Cable & Wireless, generally has significant control over the company, the ability to make decisions that directly affect Bahamians. Putting this control in the hands of a foreign entity is not only against the philosophy of the PLP, empowering Bahamians at all costs, but has serious long term implications to the advancement of Bahamians. A majority shareholder can affect:
· The hire of management
· The transfer of services and responsibilities to other countries or companies
· Board control, which sets the policy of the company
· Separation of employees from the company
Selling 51% of BTC to Cable & Wireless, a foreign company, proves that this government supports no real initiatives to empower young Bahamians or champion entrepreneurship as a viable option for innovative Bahamians. The Government’s decision to sell 51% of BTC shares to Cable & Wireless implies that their model is to create a nation of workers only, as opposed to promoting wealth creation. So the PLP asks, what exactly is the Bahamian public getting from this sale, besides the export of the ownership of the crown jewel of government corporations. Elizabeth cannot support this philosophy, cannot support the commercial terms of this transaction. This is not about political rhetoric, it is about what is in the best interest of Bahamians, the best interest of my constituents in Elizabeth. And the sale of 51% of BTC to Cable & Wireless is not in their best interest.
Bahamian Ownership – Don’t let this government fool you. They will claim that they believe in Bahamians because they will make 25% of the shares available. Well Bahamians deserve better than crumbs. And even this statement is misleading and not completely truthful. The Shareholders’ Agreement defines who is a Bahamian that 25% of the shares are reserved for. Do you know that pursuant to the Shareholder Agreement, this Government believes a Bahamian to be a company that has 40% foreign ownership? That isn’t a Bahamian to me, that isn’t a Bahamian to the Progressive Liberal Party. Maybe to this Government that is what a Bahamian is, but I do not expect any more from the Foreign National Movement. Bahamian is Bahamian. After this deal, and after the Government offers its shares, it is entirely possible that foreign persons will own much more that 51% of share of BTC. How can you, my colleagues on the opposite side agree to this? Be honest and straightforward with the Bahamians people, stop ducking and avoiding. Tell the Bahamian people that in real economic terms, Cable and Wireless are actually receiving more than 51% of the profits of BTC, they are to receive 2% of the gross revenues as a management fee, this would equal far more than 51% of the profits of BTC and maybe more like 60% of the profits of BTC. Why is there a management fee for the majority stakeholder, other than to skim off more money from BTC.
Recommended Commercial Deal
The PLP believes that BTC should not be a part of a regional conglomerate, but should strive and compete to be the dominant regional telecommunications company. The PLP believes that BTC can be a dominant regional company, owned and run by Bahamians. Our Leader just yesterday spoke about the Bank of the Bahamas model, and we believe this the recommended model for deepening a share ownership democracy for all Bahamians. What I mean by this is that a Bahamian owned BTC, pursuing the vision of being the dominant regional telecommunications company, will provide ownership and economic empowerment for Bahamians. The PLP Government set the framework for this by its increased capital investment in BTC. BTC is prepared to take on this vision, to be the ATT of the Caribbean. I want to take the opportunity to further explain both the share ownership model as well as the expansion vision for BTC.
Share Owning Democracy – We must have confidence in our institutions and that Bahamians can own and operate and compete effectively. We believe that the share ownership and empowerment structure of The Bank of the Bahamas is the model for the ownership and operations of BTC. The Bank of the Bahamas is 51% owned by the Government of the Bahamas and the National Insurance Board. The remaining 49% is owned by approximately 4,000 Bahamian shareholders. The Bank of the Bahamas competes successfully in a highly competitive industry of financial services. The Bank of the Bahamas is managed by Bahamians in an international marketplace, an innovative and dynamic management, so much so that they have expanded internationally into Miami.
Likewise, BTC should be 51% owned by the Government of the Bahamas, and 49% owned by Bahamians. BTC should be run by Bahamians in an equally dynamic and expansionist fashion. The model is proven in a highly competitive industry, model of Bahamian empowerment, a Bahamian share owning democracy.
Regional Dominance – Like the expansionist nature of the Bank of the Bahamas, which is run by Bahamians, the vision of the PLP for BTC is also an expansionist model run by Bahamians. BTC has a tremendous opportunity. BTC currently has a direct link to South Florida, and because of the vision of Bahamian management and the PLP Government, expanded with direct connections to Haiti and Cuba. I ask you, where are the largest immigrant populations from in South Florida, yes that’s right, Cuba and Haiti. Imagine a scenario where BTC controls most of the telecommunications traffic between South Florida to Haiti and Cuba, obtaining compensation for each call made between these countries.
This philosophy is that of Bahamian management, we don’t need this Cable & Wireless deal for this to happen!!!! It is a Bahamian position put forward by Bahamians for a Bahamian BTC. This would be the foundation for further expansion throughout the Caribbean, interconnecting with Jamaica, the Dominican Republic, etc. This is how BTC becomes the dominant regional telecommunications force, owned and operated by Bahamians. We have to think big, we have to believe our people can dominate the region and support programs and policies to encourage it.
Conclusion
This BTC deal stinks to high heaven. It stinks because the Government is giving away 51% - that is, control - to a foreign company, and not just any foreign company, but Cable & Wireless, with a history of trouble in the Caribbean. From the start, when Bahamians were told they “need not apply”, this process has not been transparent. In fact, even though the Government has received the voluntary work force plan of Cable & Wireless, they still have not disclosed this to the Bahamian public. Disclose how Bahamians will be fired from BTC, don’t hide it. Half stepping on what you tell Bahamians cannot be called transparent. Ask yourselves why this company is being sold for less than its assets are worth - and not just less, but hundreds of millions less. It stinks - it does not pass the smell test.
A government for the people would promote a platform of privatization that provides ownership and share owning democracy for all Bahamians. You don’t sit back and accept whatever you get, you put in place a model to empower Bahamians, putting forth the alternative, looking out for the people you represent.
So, my colleagues on the other side, you know what your constituents are saying, you know what your constituents are pleading for. They have the same cares and concerns as my constituents. Be bold, have some courage, represent your people. Be Brave like the Member from Bamboo Town, who couldn’t site idly by under this tyrannical leadership of your party and resigned from the FNM this morning. Vote your conscience, vote against the sale of 51% of BTC to the foreign company, Cable & Wireless. Do the right thing. You know in your hearts this deal stinks. Stand up to the Prime Minister....for once, show some courage. The people of the Bahamas will be carefully watching this vote...they are going to be looking to see which MP has the guts to do what’s right. See, this is not a debate about privatization, I want to be clear on that. This is a debate on selling 51% of BTC to Cable & Wireless at a fire sale price. Stand up and represent your people by voting NO to this deal. Elizabeth does not support the sale of 51% of BTC to Cable & Wireless. Elizabeth proudly votes NO!!!
© Copyright 2011 by thebahamasweekly.com
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