The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government is exploring whether “a third party” could take a minor stake in the Bahamas Telecommunications Company (BTC) and thus return the company to majority Bahamian ownership, a Wall Street credit rating agency has revealed.

Standard & Poor’s (S&P), in its full assessment of the Bahamian economy that was published on Friday, also described the Christie administration’s efforts to renegotiate BTC’s privatisation as “an isolated event”, suggesting that it was not policy to revise all foreign investment agreements negotiated by the former government.

Indeed, S&P reiterated its criticism of the Ingraham administration’s so-called ‘Stop, Review and Cancel’ approach to pipeline government contracts it inherited upon taking office in 2007, arguing that this had halted numerous investment projects and “added to the economic downturn” experienced by the Bahamas.

Referring to the Progressive Liberal Party’s (PLP) previous claims about “irregularities” in the BTC privatisation process, allegations that have yet to be proven, S&P also noted the “complaints about service” following Cable & Wireless Communications (CWC) assumption of 51 per cent majority ownership and the transition to the new 4G network.

“The Government is considering buying back a majority stake or having a third party take a small stake so that the Government regains control,” the S&P report said.

The Wall Street rating agency would likely have been told about the ‘third party’ idea from the Government itself, given that it will have met in Nassau with numerous Cabinet ministers and officials prior to writing its report.

It is unclear whether the Government’s four-person BTC negotiating team will have put such a suggestion to CWC yet, but the ‘third party’ option - having an entity other than the Government buy a stake in the telecoms carrier - was previously floated in Tribune Business by columnist and financial analyst, Richard Coulson.

Exactly how the ‘third party’ option will work was not detailed by S&P, and it is possible the Government will not yet know itself. The likeliest, and most transparent mechanism, would be for the Government and CWC to both agree to sell a small percentage of their existing shareholdings to the Bahamian public via an initial public offering (IPO). This could be arranged in such a way that, post-IPO, the Government and Bahamian ‘third party’ collectively end up owning 51 per cent, with CWC retaining 49 per cent.

Meanwhile, S&P indicated it was not too concerned about any wider ramifications for foreign direct investment (FDI) from the BTC situation.

“It does appear that the BTC privatisation is an isolated event, and that the Christie administration isn’t undertaking a broader review of public contracts, as the FNM government did upon assuming office in mid-2007,” S&P added.

“This process lasted several years, stalled numerous investment projects and, in our opinion, contributed to the economic downturn.”

Elsewhere in its assessment of the ‘real’ sectors of the Bahamian economy, S&P gave a nod to concerns over Baha Mar potentially ‘splitting the pie’ with Atlantis in the competition for high-end tourists when it begins operations in 2014.

“Some question whether the Bahamas can accommodate another project as large as Atlantis, despite the boon it would be to the economy,” S&P said.

When it came to the banking sector, S&P said total credit advanced to the Bahamian private sector had “in essence stagnated” in 2010-2011 after average growth of 12.7 per cent per annum between 2005-2007.

“Residential mortgages, which account for almost 50 per cent of private sector loans, increased by an average of 15 per cent per year during 2005-2007, and then slowed in 2008-2009 as the recession deepened, growing an average 6.8 per cent. They then contracted 8.7 per cent in 2010 and grew by 6.7 per cent in 2011,” S&P added.

While the ratio of commercial bank provisions to non-performing loans stood at 41.5 per cent as at June 2012, S&P praised the sector. It added: “Banks in the Bahamas remain extremely well capitalised, with average capitalisation of about 27 per cent and ranges from 23-55 per cent, and are broadly able to manage potential losses.”

While non-resident deposits on the books of Bahamian commercial banks remained “quite substantial”, S&P said these had fallen from 53 per cent of the sector’s external liabilities in 2009 to around one-third as at June 2012. Non-resident deposits were four times’ Bahamian GDP and five times’ resident deposits.