The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

An ex-prime minister yesterday demanded the Government revamp its New Providence electricity grid reforms by allowing “average” Bahamian investors to directly participate via an initial public offering (IPO).

Dr Hubert Minnis told Tribune Business that the way in which Bahamas Grid Company, which will own and control the grid, is financially structured sends the message that Bahamians “are only good enough to pay the light bill” by excluding individuals - known as retail investors - from being able to acquire and hold shares themselves in this entity.

He instead argued that the Bahamas Grid Company should be structured similar to BISX-listed Arawak Port Development Company (APD) to better spread the wealth and help develop a so-called ‘shareholder’ economy. Some 20 percent of APD is owned collectively by 12,900 Bahamian investors, many of them individuals, who invested the minimum $1,000 when the Arawak Cay port was created in 2011.

However, Bahamas Grid Company is 60 percent owned by unnamed wealthy investors who, according to the offering documents, needed to spend a minimum $1m to acquire at least 50,000 shares before they could participate in the total $30m equity raise held earlier this year.

While the Government holds the remaining 40 percent, Dr Minnis told this newspaper that these minimum requirements - along with the fact that the investment opportunity was only offered to a select few institutions and high net worth individuals - automatically excluded “more than 90 percent of the Bahamian population” from direct participation.

Calling on the Government to publicly name who Bahamas Grid Company’s equity investors and owners are, the former prime minister added that he was in “discussions” with attorneys over the Government’s Bahamas Power & Light (BPL) and wider energy sector reforms and will have more to say when Parliament reconvenes this fall although he gave no specifics.

Neither the Government, nor Bahamas Grid Company and its manager, Island Grid, have given any indication that direct retail investor participation in the transmission and distribution network reforms will be permitted even though the arrangement is set to remain in place for a generation. The Bahamas Grid/Island Grid deal is for a 25-year term, with option to extend for a further ten, meaning it could last 35 years.

Instead, the Bahamas Grid Company offering documents issued to investors signal that the ultimate financial structure will be akin to that currently employed at the Bahamas Telecommunications Company (BTC). They state that, some seven years after a Heads of Agreement signing, the Government will have the right to acquire 9 percent of the shares held by the majority private investors at “fair market value”. 

This would increase the Government’s stake to 49 percent, and reduce the private investors’ collective holding to 51 percent. The offering documents, though, stipulate that the latter will also contribute a further 2 percent of their investment to a charitable foundation, leaving the private investors with 49 percent and an ownership structure that exactly mirrors that at BTC with no promise of an IPO.

Dr Minnis yesterday blasted that these plans mean ordinary Bahamians will be unable to directly share in Bahamas Grid Company’s profits, which are forecast to rise from $10.418m after its first year in existence to $13.677m by year five. He suggested that profits over the lifetime of the 35-year deal could collectively total $500m, or half a billion dollars, although there is no evidence to support that figure.

“If you say you are for Bahamians and local individuals, you should allow them to take advantage of whatever profits are to be made,” the former prime minister argued to Tribune Business. “The Government is saying I’m only good, as an average individual and Bahamian, I’m only good to pay the BPL bill but I’m not good enough to join you at the table and make a profit.

“Don’t tell me I’m only good enough to be a servant. That should have been opened up to the public. APD is a perfect example. I have spoken to individuals who invested $1,000 in APD, and they told me they have got dividends while the value of their $1,000 investment has gone up even higher. They’ve got their returns and money back already.

“They could have done the APD model, and allowed public servants to participate as well. Instead, you have a two-tier system of a select few who can invest, and automatically exclude the Bahamian public other than to pay the bill. At a time when there is a high cost of living, it would have given individuals an opportunity to have some financial return,” Dr Minnis added.

“The only ones you are selecting to participate are the elite and the wealthy. Give the Bahamian an opportunity to make money and have a reasonable return. The only thing you want me to do as a Bahamian is pay the light bill for those wealthy individuals to become more wealthy. Why should they be the only ones entitled to the profits.”

The Davis administration, though, will retort that thousands of Bahamians are already indirect investors in Bahamas Grid Company through their participation in the likes of pension plans, mutual funds and other investment and money managers who invested in both the equity and debt portions of the firm’s total $130m capital raise.

Besides the $30m equity raise, Bahamas Grid Company also sourced $100m in bond financing or debt capital to fund the first year of “foundational upgrades” to New Providence’s electricity network. These bonds carry an 8 percent interest coupon, representing a rate almost double 4.25 percent Bahamian Prime, and much higher than the minimal interest Bahamians are receiving on bank deposits.

Thus the returns Bahamians will earn, via pension funds and mutual funds, will be much higher than what is available via the banks. However, Dr Minnis challenged the Government to disclose the identities of Bahamas Grid Company’s majority equity owners as he questioned whether politically-connected persons from both the major parties - PLP and FNM - are among them.

“I’m not going to say what I’m going to get into, but when I go to Parliament I’m going to speak to that,” the former prime minister added. “I’m very annoyed with what they’ve done. I’m very disturbed that the only benefit they see of the Bahamian people is to pay the bill to make them wealthier.

“Who are the investors? Who are the wealthy individuals owning the company? I am still reading everything. When I come to Parliament we’ll see. I would hope they disclose it. Who are they hiding, who are they protecting? Are they highly-placed officials from the FNM and PLP? Let us know. The public wants to know. People need to who invested this $30m. The Bahamian people want to know.”

As a private company, Bahamas Grid Company has no obligation to disclose the identities of its shareholders and beneficial owners, although these are sometimes listed in a firm’s annual returns filed with the Registrar General’s Department. Its offering documents also make clear that the shares will not be listed on the Bahamas International Securities Exchange (BISX).

Dr Minnis told Tribune Business that he is “discussing all that with the lawyers as to what can be done” in relation to the Government’s proposed energy reforms, although he declined to specify exactly what is being reviewed and any action he plans to take.

“I would hope the Bahamian populace recognise the politicians are working for them, and when the Government makes a bad decision - be they PLP, FNM or Coalition of Independents - the public has a responsibility, because they can’t fire them for five years, to keep them accountable by voicing their concerns and disagreements,” the Killarney MP said.

“They are our employees. Don’t get it wrong. The Bahamian people employ the politicians. The views of the past, when it was thought the politicians are all-powerful, are the past. Stand up and speak.”

Dr Minnis also cited the Nassau Cruise Port, in which Bahamian investors were able to acquire a collective 49 percent stake by investing in a mutual fund, as another example where individual, retail investor participation was favoured.

He added that Global Ports Holding, the controlling shareholder, made a $10m facility available to help finance the purchase of shares by ordinary Bahamians. As for APD, besides the 20 percent equity stake in public hands, the remaining 80 percent is split between the Government and private shipping industry.