Wednesday, 10 November 1999

Mid-Med Share Price - Then and Now

The Times of Malta

I crave for` the opportunity to prove myself.` If HSBC and Government undo the deal and I were to be given a brief to sell the 67.1% block of shares, provided I am allowed 6 months and an expense` budget of` between 3% and 4% of the sale proceeds I am confident of a minimum price of Lm 4.50, a probable price of Lm5 and a possible price of Lm5.50per share.` It was done for Maltacom and it can be done again for Mid-Med.`

When I wrote the above in the last week of April 1999 ( in a series of articles on the MMB sale to HSBC later published in The Times) I was putting myself on the line. But I was sure it could be done by proper marketing on the international market.` However I never had high hopes that the base figure of` Lm4.50 would be reached bang on 6 months later through the modest Malta Stock Exchange` medium alone.

Clearly I am fully justified if I claim I told you so.` I still look forward to reaching the other price levels set in my above quoted excerpt. But what`s important is not whether I told so or not. What`s important is that Government blew away some Lm30 million through the slipshod and hurried way in which Mid-Med was privatised.

And Lm30 million is taking the effective share transfer price as Lm3.40 and not Lm2.90 as otherwise one would have to load on another write-off of Lm12 million. Personally I still harbour doubts that through the way the contract is written,` HSBC can knock off the Lm12 million, only payable in June 2000, `the terminal benefits it is paying to employees for early retirement.

What`s important also is that through collective protection the 30% minority shareholders have stuck out for their rights and saw the market finally coming round to price Mid-Med shares nearer their true worth. In the process making minority shareholders richer by some Lm17 million benchmarked against the Lm2.90` price at which HSBC offered to buy their shares.

I would have stayed quiet and let facts speak for themselves had not the Prime Minister in a Xarabank show tried to twist these clear facts to protect his administration from accusations of mal-administration. In any other EU country the mal-administration on this scale would have demanded the resignation of anyone responsible for its concoction.

The Prime Minister argued that the Mid-Med share price went up so high only because of the involvement of HSBC which has brought in new confidence in the bank`s ability to perform well. Without in any way showing any disrespect to the ability of Mid-Med new owners to manage the Bank in the most professional and efficient manner, there is ample proof that the explosion in share price of Mid-Med is related to the quick education of the market in recognising the true worth of the shares.

Something which unfortunately the government failed to do in the fire-sale of Mid-Med Bank at a mere 7% premium over its last quoted` price prior to the suspension of trading last April.

At the point of suspension the variance between the price of Mid-Med Bank and Bank of Valletta was not much less than what it is today. This means that Bank of Valletta`s share price has more or less followed the same tracks as that of Mid-Med Bank. Had` Mid-Med Bank share price hike been caused by the HSBC factor,` than one would have expected the differential in share price between MMB and BoV to widen substantially in favour of MMB. Indeed one would have expected the BoV share price to come under pressure in the knowledge that their performance will be depressed by the arrival of a global formidable competitor.

Yet BoV share price still commands the same price/earnings ratio as that of MMB which by international standards is still low allowing ample room for further advancement of their share price.

The other illogical` justification for the dismal price obtained by the government as given by the Prime Minister in his Xarabank show was that ,as Chairman of the Bank in November last year, I had offered to buy back the shares at a price of just over Lm2.

All business schools from Micawber to Harvard will teach the simple truism that to make a profit one has to buy low and sell high. How can the fact that I had offered to buy low (but above the then market price) be any justification for anyone to sell low I and many others like me would never have criticised the government for buying at a good bargain price. Certainly I do not criticise HSBC for seeing a bargain and grabbing it when it is offered. HSBC total investment of Lm82 million of which they have so far paid Lm35 million has already given them returns of Lm42 million in the space of` 4 months odd. On a rate of return basis it is probably the most profitable investment HSBC have ever made.

My criticism is for selling low.` If government can`t understand that or expects all good citizens to stay mum while it prepares the next wave of taxes and expenditure cuts,` then rather than aspiring to join the EU we should be good candidates to join a sub-saharan economic union.

Alfred Mifsud