Sunday, 3 December 2000

The Epilogue of the sale of Mid-Med Bank

The Malta Independent on Sunday

The Epilogue to the sale of Mid-Med Bank

As if the sale of Mid-Med Bank was not unorthodox and confused enough, this week we had an epilogue giving a fitting end to this mess-up. Shares of Middle Sea Insurance, which the government had acquired from Mid-Med Bank prior to its sale to HSBC, and` which till last week were being quoted on the Malta Stock Exchange at Lm4.06 each were offered for sale by the government to a restricted group at the favourable price of Lm2.28.

In so doing the government offends two important principles regarding which it is time for our watchdogs and regulators to show their mettle if they are to deserve our respect.

The first principle concerns` government`s right to sell public property with a market value of Lm4.06 to a selected group of citizens at a sub-optimal price of Lm2.28. A value of Lm1,78 per share is being burnt to the collective detriment of the general public which multiplied by the 863,625 shares on offer brings a loss of value to the public detriment of Lm1,537,252. What right does the executive, in the case the Ministry of Finance, have to dispose of public property in this shoddy manner` Was not the sale of Mid-Med Bank itself at clear sub-optimal prices damaging enough` Do we have to destroy more value from the public assets`

What is the Office of the Auditor General doing about this glaring gross negligence costing the public so dearly` Or does the Office of the Auditor General only show its teeth when it has an opportunity to embarrass a Labour administration as it tried to go by going well beyond its terms of reference` when I referred for their prior inspection the purchase of property adjacent to the Centru Ruzar Briffa of Mid-Med Bank in 1998`

By offering these shares at Lm2.28 when their market price was Lm4.06 the government is also making a mockery of the mechanism of the Malta Stock Exchange. Once these shares are quoted they should only be traded through the mechanism of the Stock Exchange and at transparent prices fixed by the Exchange mechanisms.` You just cannot have a share being sold on the Exchange at Lm4.06 and a similar share being sold privately by the government to a selected group of citizens at a substantially lower price.` The evident consequence of this is that many of the private citizens who have the opportunity to buy at below market price will do so and immediately cash their profit by trading the newly acquired shares on the Exchange pushing the quoted price down until an equilibrium price` is reached` between Lm2.28 and` Lm4.06. This has already happened and we have seen Middle Sea Insurance quoted share price rapidly losing value this week and this to the great detriment of existing shareholders in Middle Sea Insurance.

It is the duty of the Malta Stock Exchange to intervene and restore order in the market by insisting that any sale of shares is done through its mechanisms and under its own laws and conditions.` The Malta Stock exchange has the obligation to defend the interest of existing shareholders of Middle Sea.` The same applies to the Board of Directors of Middle Sea who have the duty to defend their minority shareholders against heavy handedness by one of its shareholders, in this case the Government.

The quasi-complete silence by these two organs in the face of such abusive practice is defeaning and says much on the poor level of corporate governance culture even within our publicly quoted companies..` Together with four other colleagues it was only I that` put up a brave front to defend the minority shareholders of Mid-Med Bank from oft declared intentions of the new majority shareholder to acquire all the private shareholding at the same price of Lm2.90 as` paid to the government.

It was our collective action at great personal sacrifice and in the face of abusive threats from those who should have known better, that the minority shareholders right to hold on to their shares was defended. As a result` they enjoyed unparalled growth in the value of their investment which made the government blush in the face for being exposed that it had sold its investment in Mid-Med Bank at less than half its real value.

The Ministry of Finance parried criticism by saying that if these shares were not transferred to the Government prior to the sale of Mid-Med Bank the capital growth of the investment would have benefited the bank` shareholders. But what sort of an argument is this` From the very first agreement signed between the government and HSBC it was made clear that the Middle Sea shares would not be included in the deal and they would be bought by the government from the Bank prior to the share transfer. Initially the price was set at Lm1.60. However,` as between the date of the first agreement in April 1999 and the final agreement in June 1999, the share price increased,` the deal was closed at Lm2.28.

This on its own involved` the government in an extra cost of Lm1.8 million which was all profit for the Bank not even reflected in the share transfer price of Lm2.90 which was fixed prior to this happening. Why on earth the government felt obliged to offer part of these` to shareholders on the register of the Bank` at sub-market is the result of warped reasoning; unless the intention was to coax Mid-Med private shareholders to accept the offer by HSBC at Lm2.90 and invest the proceeds in Middle Sea shares on offer from the government.

Obviously things did not work out that way. Mid-Med Bank shareholders held on to their shares and before the bank had its name changed to HSBC Malta almost exactly one year ago the private shareholders` were laughing all the way to the Bank with near 100% tax-free profit in just 5 months. Why these shareholders should be further priveleged by being offered a quick cash cow to the detriment of the other existing shareholders of Middle Sea is just` incredible mismanagement of public assets. I had defended` the interest of Mid-Med Bank private shareholders even in Court when it was necessary to do so and the results are there for all to see. But it makes no sense to privilege one group of private shareholders to the detriment of others.

This amateurism and meddling in serious finance manners by shoddy hands has to stop before we destroy all confidence in the markets.

And then what sense does it makes to burn Lm1.5 million in public assets value at the same time we are taxing people to their bones`

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