The sale of shares in the telephone company

May 11, 2009 Features / Columnists, Peeping Tom

The government of Guyana despite being represented on the Board of Directors of the Guyana Telephone and Telegraph Company (GT&T) has little influence on the affairs of that entity. The government is minority shareholder with only a twenty per cent interest, which allows only two Directors on the Board of that company.

The voting power of the government is not sufficient to allow it to exercise greater control and decision-making in that entity.

As such there may be a strong compulsion for the government to sell these shares, which allow it only limited influence.

It may seem logical for any government to sell its shares in a company in which it does not have the sort of weight to influence things at the level of the Board.

On the other hand, a twenty per cent share in a highly profitable multi-billion dollar company carries with it the opportunities for significant dividends to shareholders. This financial interest also should have weighed against the government contemplating selling its shares.

One of the arguments, which the government has used to justify investments in the Berbice River Bridge, is the rate of return that is guaranteed.

The government has indicated that the rate of return for the bridge investment allows investors to gain much more than alternative investments, say in treasury bills.

I am sure that in the case of GT&T, and notwithstanding the issue of the advisory fees, that the government of Guyana’s 20% shareholding in the telephone company brings a good return for the government, considering the profits that the telephone company has been showing over the years and which it is likely to show in coming years given the growth in the telecommunication and related sector.

The government, from a financial perspective, must not just look at the existing profitability of the company but also its future prospects at a time when more and more Guyanese have telephones and when international traffic is likely to increase and liberalization in the sector deepens.

One of the criticisms of the Desmond Hoyt administration was its failure to take account of the future profitability of the telephone sector when it sold the national telephone company, GTC for a pittance.

At the time, the State-owned company was negotiating with a foreign company to modernize its operation and was leveraging its assets for an investment, which was likely to be more than double what it got for in the divestment.

The government still however then retained a 20% ownership in the new company and this is the share that is now being offered up for sale.

No one has so far raised an eyebrow over the decision of the government to sell these highly profitable shares.

The government proposes to make a first offer to the telephone company itself and if it is not successful there, to offer the shares for sale to someone else.

My own suspicion is that the government will end up selling these shares on the open market.

As a purported working class government, it ought to consider selling off these shares to workers so that the small man can have an opportunity to own part of the company.

But since the government also did not offer shares in the Berbice River Bridge to small investors such as workers, it is doubtful whether the lucrative shares in GT&T should be offered for sale.

Whatever is decided upon, it will be unfortunate because there is no reason why, unless the government knows something that the rest of the country does not know, the government should be selling these shares.

One possible reason why the government may be moving to dispose of these shares is because it expects that the monopoly granted by the Desmond Hoyt administration will be ruled as being unconstitutional and thus it does not wish to be enjoined to any challenge to the monopoly held by the GT&T.

Another reason could be that the international lending agencies are demanding that the government divest itself of interests in a number of areas.

We have already seen the government placing on the market, a number of buildings, which had belonged to the State. We have also seen the Guyana Sugar Corporation divest itself of some of its lands and properties.

So we may be witnessing a second wave of divestment, but I doubt very much whether this is so.

Whatever the reason, the government needs to make a public explanation, and not just an announcement, as to why it is moving at this point of time to divest itself of its minority interest in the telephone company.