The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Bahamas Telecommunications Company (BTC) is forecast to generate $100 million in operating income this current financial year, a 9.9 per cent year-over-year increase, one London-based analyst yesterday saying its majority shareholder believed it had sufficient “legal protection” to guard against the Government’s attempts to claim a 51 per cent stake.

Nick Brown, a Cable & Wireless Communications (CWC) analyst with Espirito Santo, told Tribune Business that the telecommunications operator had anticipated an incoming Progressive Liberal Party (PLP) government might attempt to re-write its privatisation deal, so the agreement was designed to prevent that possibility.

Other London-based analysts, though, effectively described the Christie administration’s seeming determination to re-nationalise BTC as “illogical”, questioning why it thought a government could run the company better than a telecommunications industry player.

Robert Grindle, a CWC analyst with Deutsche Bank, told Tribune Business that the Christie administration’s moves did not “sound terribly helpful” to the company’s efforts to transform the Bahamas into a “regional powerhouse” via improved communications services.

And he reiterated that the Government’s attempt to renegotiate the privatisation deal would cause international investors to further question whether the Bahamas was “the place to put one’s money”.

In a note issued yesterday to investors, Espirito Santo’s Mr Brown said of the BTC situation: “A potential attempt to re-nationalise the business was one of the risks CWC considered when it bought its stake, and so the contract was drawn up appropriately, offering some legal protection.”

However, he appeared not to give the Government much prospect of succeeding in negotiations to wrest back 51 per cent majority ownership from CWC.

“In our view the most likely outcome is just an IPO and some other minor community support programmes, something the previous government was also considering, similar to the recent solution in the Maldives,” Mr Brown wrote.

Alluding to the tremendous difficulty the Government would likely have in financing such a deal, particularly given that it would add to a projected $550 million fiscal deficit and national debt pushing towards $5 billion, Mr Brown noted the unhappy example set by fellow Caribbean state, Belize.

“There is precedence in the region in Belize, where the telecoms operator was re-nationalised but the deal ended up in litigation over the proposed compensation, and the resulting debt burden was a contributing factor to the country’s recent default,” Mr Brown wrote.

He added that press coverage of the situation in the Bahamas had also “highlighted the impracticalities of pursuing a re-nationalisation”.

In a brief interview with Tribune Business, Mr Brown suggested that CWC was not yet convinced itself of the Government’s total determination to go from minority to majority BTC shareholder.

“They [CWC] believe they have legal protection put there before they made the deal in the first instance, anticipating this might happen,” he added of the privatisation contract safeguards.

“They also don’t believe they’re [the Government] completely committed to going through with acquiring” the majority equity ownership.

Again highlighting how important BTC was to CWC and its Caribbean regional business, LIME, Mr Brown said the Bahamian carrier “represents about 11 per cent” of the total group according to a ‘sum of the parts’ valuation.

BTC generated $91 million in earnings before interest, taxation, depreciation and amortisation (EBITDA), or operating income, in the financial year to end-March 2012.

For 2013, Mr Brown told Tribune Business: “In terms of EBITDA expectations we’re looking at $100 million this year out of $890 million - 11 per cent of EBITDA.”

Mr Grindle added that BTC’s $91 million EBITDA contribution accounted for 32 per cent of LIME’s $283 million total for 2012, and 10 per cent of CWC’s group-wide $901 million performance.

“It’s a very important asset, and on that basis CWC will be making sure they do a good job,” the Deutsche Bank analyst told Tribune Business.

“To be successful they need to balance the needs of the Government and the people of the Bahamas. There’s no point in making people unhappy and losing money over time.

“The best thing they can do is run an efficient telco with better pricing and services, which grows the economy and helps the Bahamas become a regional powerhouse.”

Mr Grindle said this provided plenty of incentive for CWC, but the Government’s current policy stance threatened to undermine this.

Given that the Government and CWC were close to being equal partners in BTC, Mr Grindle said the issue could not be economic, as the two sides dividend earnings were not far apart.

“Thinking the company will do a better job if it’s not controlled by a telco is an odd thing to expect,” he added. “How can one have the logic that the company will be better run by a non-telco?”

Emphasising that he was “not saying the Government doesn’t have good skills”, Mr Grindle urged it to compare the performance of privatised communications carriers with those that remained government-owned or had been re-nationalised.

As for the potential impact on foreign direct investment (FDI) inflows into the Bahamas, Mr Grindle told Tribune Business:”International investors like to see stability of government policy, rather than any volatility.

“Even if the Government changes, one likes to expect that what was agreed with one will be recognised by the next, so clearly this thing is concerning for the international community in thinking the Bahamas is a place to put one’s money.”