The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Cable & Wireless Communications (CWC) decided that $25 million was “a price worth paying” for peace with the Bahamian government, a London-based analyst yesterday describing their deal as “an elegant resolution”.

Robert Grindle, the Espirito Santo investment bank analyst who covers CWC, said its agreement to place close to 2 per cent of its BTC stake into a charitable foundation run by the Government would only have a “modest” impact on the UK-listed telecoms carrier.

Mr Grindle valued the shares being placed into the BTC Foundation at $8.2 million, based on the Bahamian carrier’s value at the time of its 2011 privatisation, and $25 million based on the extra value generated through its restructuring.

“Whilst the demands of an incoming government to partly reverse a privatisation process, which took many years to complete, is a matter for local politics, the impact on CWC is modest,” Mr Grindle said in a research note to investors, which has been obtained by Tribune Business.

“The company has taken the view that a charitable donation worth $8.2 million, based on the value at privatisation, and $25 million based on our FV fair valuation - the business has been substantially restructured - is a price worth paying ahead of liberalisation of the Bahamian telco sector later this year.”

By donating close to 2 per cent of its BTC shares, CWC has ensured that its equity stake remains slightly higher than the Government’s. That, together with retaining Board and management control, has been vital in ensuring it can continue to consolidate BTC’s performance into its group financials.

This is an elegant resolution of this issue,” Mr Grindle said of the Foundation agreement.

“BTC had an existing CSR (Corporate Social Responsibility) programme that the BTC Foundation will now take formal responsibility for. The annual impact on FCF (free cash flow) will be around $1-2 million annually, or on net present value, significantly less than 1 per cent of CWC’s market capitalisation.

“Perhaps, given the nature of the Trust, the stated early projects and improved government relations, the news is actually value accretive.”

In a brief interview with Tribune Business, Mr Grindle said it was vital to BTC’s continued profitability and improved services that the Government’s demands to regain a majority equity stake were met.

“It’s good for everybody that peace has broken out. This has been a bit of an ongoing issue,” he said. “I think the Government somehow got what it wanted in some regards.

“The key thing for CWC is to push through the changes at the company they control. That’s positive for the future profitability of the company they control. That, and improving service in the Bahamas, which makes them more successful in the long-term.”

In his investment note, Mr Grindle added that while CWC was “not required to comply with any change in ownership request”, with the Foundation “a gesture to resolve the issue and move forward”.

Another London-based CWC analyst, speaking on condition of anonymity, said it was vital for the company to maintain Board control, and be able to include BTC in its financials, as the Bahamian carrier accounted for “a bit over 15 per cent” of its total business.

That is a material percentage, 10 per cent being the threshold that determines this, and the analyst agreed that the Foundation deal was one that allowed both parties to ‘save face’ and get what they wanted at the same time.

“Fundamentally, this is probably what had to happen for everybody to save face,” they said. “It looked increasingly likely that this was the outcome that was going to hit the table ultimately, and the only question was whether CWC could extract concessions from the Government on the timetable for cellular liberalisation.”

That latter aspect did not happen, and the analyst said the agreement’s announcement “hasn’t caused much of a ripple in the market”.

Most London-based stocks, including CWC’s, were slightly down in yesterday’s trading, and they said: “I don’t think it could really be described as an overhang on the story. They had to deal with it and get it behind them. That looks to be the way the market is interpreting it.”

While the talks between the Government and CWC had been “protracted”, lasting between 18-20 months, the analyst said issues such as this were “always a risk” given how closely the Government worked with Caribbean governments.

“They are at pains to state they want management control of the entities they own, and BTC is no different in that respect,” the analyst said.

Suggesting that CWC would never have relinquished this and Board control, they added: “They felt they had a watertight contract that was very hard for the Government to get around.”

Back in the Bahamas, many in the private sector were questioning what the Government had achieved, and why it had even decided to embark on the course it chose over BTC, given the potential harm it may have caused to this nation’s investment reputation.

“What a farce. It’s ridiculous,” Rick Lowe, the Nassau Institute executive, told Tribune Business. “We’ve wasted two years and got people’s emotions through the roof.”

He added that government decisions should only be overturned if they were “absolutely ridiculous”, and pointed out that the Christie administration was now embarking on the same course - privatisation - for the Bahamas Electricity Corporation (BEC) that it had criticised the former administration for with BTC.

Arguing that political risk was “rearing its ugly head more and more” in the Bahamas, Mr Lowe said: “Instead of focusing on economic growth, they keep on focusing on things that are seemingly insignificant.

“Instead of governing, they’re politicising. Politics is ruining us.”

And a Bahamas-based financial expert, speaking on condition of anonymity, said: “It’s sad. It’s a laughable situation. We’ve wasted time, and they believe they [the Government] haven’t.

“They’ve cost CWC money, and it’s sad in terms of our reputation. Our reputation as a place to do business has been damaged. What else do we need to happen.”