The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The ‘HoldingCo’ that will have a 51 per cent majority stake in the Bahamas’ second mobile operator is being structured as a national investment fund, which will ultimately “expand its reach” into private-public partnerships (PPPs) and other economic opportunities.

Gowon Bowe, the PricewaterhouseCoopers (PwC) Bahamas accountant and partner, told Tribune Business yesterday that ‘HoldingCo’ was being created as a vehicle that would not be “solely restricted” to the mobile communications industry.

Instead, it is being designed for the long-term as a fund that will give Bahamian private investors the ability to access PPP-type infrastructure projects and other large investments by pooling their capital resources.

Mr Bowe, who together with his PwC colleagues is advising the Government on the cellular liberalisation process, said the process of structuring ‘HoldingCo’ and recruiting its investors was occurring parallel to the licence bidding process.

While discussions with potential investors to-date had taken the form of a “sounding out” exercise, because material information relating to ‘HoldingCo’ is not yet known, Mr Bowe told Tribune Business “there certainly is” interest in the concept.

Looking to ‘HoldingCo’s’ long-term future, Mr Bowe as “a national fund participating in PPPs” that was “not being solely created” to give Bahamians a majority 51 per cent stake in the second mobile operator.

Acknowledging that some may be wondering why Bahamian investors are not simply given majority ownership via a direct 51 per cent holding in ‘NewCo’, the actual mobile operator that will hold the licence, Mr Bowe said this was because the Government had greater designs.

“The purpose is to have an entity that will continue to be a 51 per cent shareholder in the mobile operator and, going forward, as HoldingCo gets cash from its investment in the mobile operator, HoldingCo will have the opportunity to participate in other PPPs that come up,” Mr Bowe told Tribune Business.

Many Bahamians have in the past complained that they have been unable to participate in major investment deals in this nation because they simply do not have the capital to compete with deeper-pocketed foreign investors.

HoldingCo, based on Mr Bowe’s description, appears to be an attempt by the Government to address that by ‘pooling’ capital from major Bahamian institutional investors.

Mr Bowe said the creation of a vehicle like ‘HoldingCo’ would enable Bahamians to participate in processes such as the Bahamas Electricity Corporation (BEC) restructuring.

He added that it might also have prevented the necessity for the Government to become a 40 per cent equity investor in the Arawak Cay port, which it had to do because at the time there was “no equivalent large investor group to come in as the Bahamian representative”.

“It’s novel in terms of the Bahamian environment, but one that’s certainly not novel elsewhere,” Mr Bowe told Tribune Business of ‘HoldingCo’.

“The main thing you have to focus on is interest and participation by investor groups to make this an ideal opportunity, and other potential opportunities to do a lot more with this entity.

“Whilst we’re taking the opportunity to do that [for cellular liberalisation], because the Government mandated we do that, we’re taking the opportunity to expand its reach. This one we’re trying to make more dynamic.”

Mr Bowe said Bahamian institutional investors had given no definite commitments to buy into ‘HoldingCo’ to-date, as certain material details regarding the second mobile operator were currently unknown.

These include who will win the bid to become the second operator, the capital requirements to build-out the cellular network, and other obligations pertinent to ‘NewCo’. All these factors will weigh on investor decisions as to whether to buy into ‘NewCo’.

“It has been a sounding exercise that has already commenced,” Mr Bowe told Tribune Business of discussions with potential investors to-date.

“There certainly has been interest, and we want to make sure that interest materialises into investments.”

Mr Bowe said the cellular liberalisation team was targeting institutional investors such as pension funds and their administrators; credit unions; insurance companies; and mutual funds as these entities represented the broadest possible cross-section of Bahamians.

This, in turn, would maximise Bahamian participation and ownership in the second cellular operator, while simultaneously ensuring the latter would not be controlled/owned by a single investor or group of like-minded shareholders - as has happened with many BISX-listed firms.

Mr Bowe added that both ‘HoldingCo’ and ‘Newco’ would have the ability to become public companies if they wished (the former is more likely), which would give small Bahamian retail investors the opportunity to buy in.

Mr Bowe reiterated that the Government had “no intention to serve as a shareholder in this”, and the 51 per cent stake held by ‘Holding Co’ “should all be picked up” by Bahamian investors.

The bid documents make clear that the Government is a ‘facilitator’ for the creation of ‘HoldingCo’ and the transfer of a 51 per cent stake in the second mobile operator to it.

It will effectively have to act as an ‘underwriter’ on the transfer to Bahamian private investors, and may have to retain a small equity stake in ‘HoldingCo’ for a time if all its shares cannot be placed.

Mr Bowe described this risk as “minimal, given consumer sentiment towards the incumbent, the limited capital market opportunities and opportunities for expansion of the tourism industry and wider economy. This one poses no additional risk to the Bahamian people and economy”.

However, it remains possible that the Government could be stuck with the full 51 per cent ‘HoldingCo’ stake when it comes time for the second operator to build its network out.

This would then force it to pick up a 51 per cent share of the roll-out costs which, in Digicel’s case, could total $200-$250 million. This would leave the Government’s share of the costs at somewhere between $100-$125 million.

At first glance, this would seem to leave the cash-strapped government with a further hefty bill.

Mr Bowe, though, pointed out that much depended on the second cellular operator’s business plan, and how quickly it would build-out its infrastructure given that it has three years to produce nationwide coverage.

The business’s capital and operating expenses, and projected revenues, will also factor into the equation, while the mobile operator and ‘HoldingCo’ will also have to agree on how the business should be financed - through equity, debt or a combination of both.

Mr Bowe, expressing unhappiness over the figures quoted to Tribune Business by Frank O’Carroll, Digicel’s head of business development, said: “It’s a bit misleading to quote that number itself. There are a number of viable strategies in play.

“I would have thought that premature of Digicel to quote numbers in the public domain that are part of the bid process, as they are tied to potential revenues, capital and returns on investment. They’re certainly not going to look at an infrastructure build that does not allow them a return on capital.”

Mr Bowe conceded there was “a possibility” that the Government would have to come up with the 51 per cent Bahamian share of the infrastructure build, but it would have funds available from the spectrum auction to cover its share, rather than dipping into the Public Treasury or National Insurance Board (NIB).