The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

WALL Street last night blasted the Christie administration’s plans to regain majority control of the Bahamas Telecommunications Company (BTC) as “negative” for this nation’s sovereign credit rating, and slammed the Government’s “erratic” policy approach as undermining this nation’s investment climate.

In a further warning sign for the Government that its policy could erode this nation’s creditworthiness, and attractiveness for international investors, Moody’s, the credit rating agency, predicted that the Bahamas’ fiscal deficit for the 2012-2013 Budget year was likely to come in equivalent to an astonishing 7.4 per cent of gross domestic product (GDP).

Edward Al Hussainy, a Moody’s assistant vice-president and analyst, said the Government would have to find “scarce funds” to purchase the 2 per cent it requires for 51 per cent majority control, and cover penalty and potential litigation costs, at a point when its finances were “deteriorating.”

Mr Al Hussainy added that the Christie administration’s BTC policy could also harm liberalisation of the wider Bahamian communications industry, and showed the climate for foreign investment in the Bahamas had “deteriorated.”

Referring to the Government’s announcement of its four-person committee to negotiate at least a partial reversal of the 2011 BTC privatisation, Mr Al Hussainy and Moody’s said: “The move is credit negative for the sovereign as it raises fundamental concerns about policy predictability and could damage the country’s investment climate.

“We expect the direct fiscal costs associated with the Government’s acquisition of an additional 2 per cent of equity will be relatively modest.

“However, the Government will have to secure scarce funds to finance the share purchase and cover penalty fees and potential litigation costs at a time when its finances are deteriorating,” Mr Al Hussainy added.

“We expect the fiscal deficit will be around 7.4 per cent of GDP in 2012, and that government debt has accelerated to over 51 per cent of GDP from around 30 per cent in 2007.”

Moody’s warning is along much the same lines as its comments about the Government’s proposed mortgage relief plan, which were revealed exclusively by Tribune Business in May.

While there is no mention of the Bahamas’ sovereign credit rating being further downgraded, or the outlook on this nation changed, last night’s comments on BTC proves that the Wall Street credit rating agency views the situation as another negative move.

The Bahamas’ sovereign credit rating is important because, if it gets downgraded, this nation’s debt will be seen as higher risk by international investors, and it will have to pay more to borrow on the international markets.

That, in turn, would further expand the projected $550 million fiscal deficit for 2012-2013, plus a national debt pushing up to $5 billion.

In addition, the Bahamas’ image and standing among international investors would also suffer if there was a sovereign rating downgrade.

This would potentially impact the foreign direct investment (FDI) inflows vital to Bahamian job creation, as this nation would be seen as a greater risk.

Whether all this will force the Government to change course remains to be seen, but the storm clouds are gathering around the Christie administration’s efforts to regain 51 per cent majority ownership at BTC.

By upping the ante over BTC, Prime Minister Perry Christie has effectively backed himself into a corner politically, as anything less than regaining majority control could be seen as a failure by voters and potentially impact his re-election chances.

On the other hand, if the Government persists with its current course, it risks damaging the Bahamas’ investment image, job creation and the economy, plus incurring the wrath of the likes of Moody’s – potentially risking a sovereign credit rating downgrade.

Analysing the implications of the Government’s approach for the Bahamian communications industry, Moody’s Mr Al Hussainy added: “The buyout negotiations demonstrate the Government’s erratic approach to its participation in the telecom sector, and is a reversal of the Government’s previous position on divesting and liberalising the sector.

“We had expected the liberalisation of the telecommunications sector to occur in 2014. Such an about face is a signal of broader policy uncertainty and a deterioration of the operating climate for foreign investors.”

Moody’s was also alive to the impact on Cable & Wireless Communications (CWC), BTC’s majority owner, saying current developments were also “credit negative” for the company.

“It would lose a majority equity stake in its strongest Caribbean operation and, in a worst-case scenario, management control of a key asset,” Mr Al Hussainy said.

Tony Rice, CWC’s London-based chief executive, previously said the company would retain management control at BTC whatever happened – even if it ended up with a minority 49 per cent stake – and that 100 per cent nationalisation was not on the table.

“Tony Rice, CWC’s chief executive, recently indicated that although he was open to exploring options with the Bahamian government for BTC, he preferred not to negotiate away CWC’s majority equity stake, and for good reason,” Moody’s said.

“BTC accounted for 12 per cent of CWC’s fully consolidated revenues and 10 per cent of its (operating income) in fiscal 2012, which ended 31 March, and is CWC’s only Caribbean asset that is currently performing strongly.

“The rest of CWC’s operations in the region remain under pressure. We expect BTC to be one of the key contributors to CWC’s future operating income growth amid continued macroeconomic pressures in the Caribbean and stiff mobile competition in Panama, where CWC also has a presence.”

And Moody’s and Mr Al Hussainy added: “A re-nationalisation of BTC will negatively affect CWC’s operating income on a proportionately consolidated basis.

“In the most probable scenario, CWC would be compelled to sell a 2 per cent equity stake to the Government.

“However, we expect CWC to negotiate with the Bahamian government to retain management control of BTC. Losing management control of BTC would be a significant credit negative for CWC, preventing the company from being able to fully consolidate BTC in its audited accounts.”