Beware Boxing Day(2)

Maltastar

Beware Boxing Day (2)

Another week has gone by and nothing official came out regarding the privatisation of several entities which need to be concluded by the end of the year.` Without such privatisation the budget figures for 2001 revised as recently as 22nd November 2001 will have an extra hole of Lm49 million.` There are just 9 working days left to go.

It is getting ominously close to it being a Boxing Day affair as I had predicted. One hears of accounting manoeuvres of companies disposing of their real estate without getting a real lira for it in hard money but have to pay the government both the capital gains tax on such paper transaction, as well as distribute all accumulated profits (including that from the sale of property) to government before the end of the year. That all this money has to be raised through bank finance by companies waiting to be privatised is further proof that this is not real privatisation but mere window dressing accounting or in layman`s language more like cooking the books.

The privatisation of` the main three pieces on the table is being approached wrongly and will bring economic and social consequences for many years to come if matters are concluded as I suspect they would when critics are on holiday and in good spirit between Christmas and New Year.

Giving a 7 year licence to operate all gaming and lotto is an invitation for social upheaval. Amortising the initial fee and the investment necessary over 7 years will constrain the winning consortium to go for revenue growth far greater than its natural trend. Government may make a good deal initially but the social and economic consequences will come back to haunt its successors.

The real way to go about it is the Maltacom way.` Create a 100% owned commercial entity, give it a reasonably long license to amortise the investment without having to force socially dangerous growth in the gaming and gambling culture, keep effective control by retaining 50% plus of the equity and sell the minority equity on the local and if possible or necessary on the international markets.

The same goes for MIA. Government wants to sell the airport operation by privatising 40% of the equity to a consortium dominated by a technical partner and then float the remaining 60% to the general public. The technical partner will thus dominate the fully privatised company while charging hefty technical fees for its inputs nonetheless.

This obsession with technical partners could be a very slippery road as the sale of Mid-Med to HSBC has shown. Not that we don`t need to tap foreign technology inputs. But it is cheaper to buy these inputs rather than to include them in packages involving equity sale which locks the local company with one particular technical partner. By acquiring` a dominating position the technical partner will be given the right` to exact juicy commercial terms for the technology inputs.` I can assure that these would be` much juicer than in case of a straight sale /purchase agreement which could be undone with little complications in case of non-performance.

Take Maltacom`s mobile subsidiary operating the Go mobile brand. It bought technology without sacrificing equity positions. Its technology proved superior to their renowned competitor that had the advantage of a 12 year monopoly. Yet Go mobile bit deep into its market share in its first year of operation. Consumers were advantaged by a wide choice of service and much reduced prices.

On the other hand MIA and the Lotto operation will remain` natural monopolies. Consumers will have to take their service when they need it without matching offers from competitors. Technology partners will feast on their monopoly status.

As to the Freeport it makes no sense to privatise it when it is still returning` losses. This opens the` unappetising prospect of separating the` bones from the meat so the bones stay with the government to be funded from our taxation whereas the meat goes to the private operator who gets the reward for all our past massive investments in these projects.` The government was positively advised to get the Freeport running as well as it should before proceeding with privatisation. We will know in due course why government chose to ignore this advice.

To justify its privatisation mess-up government critics often pour scorn on the fact that 17% of Maltacom`s equity in Labour`s` privatisation process was sold through GDR`s in bearer form. Last weekend this criticism was made by` a columnist whose understanding of finance does not go beyond leaving unpaid bank loans raised for projects he promotes` that never take off commercially.

Maltacom equity tapped the international market as there was no way that the full Lm36 million could be raised solely on the local market. If we had tried tapping only the local market the IPO` price would have been much inferior to the 90 cents it was launched with. But by intenational standards` Lm36 million was a small issue and the only way it could be done was through a GDR where all the shares are registered in the name of the depositary who can make a market to the individual GDR holders. The depositary chosen was the best of the breed- Bank of New York. The initial international investors were disclosed and we could choose the best international corporate investors as indicated by HSBC who was leading the IPO jointly with Mid-Med Bank. Anybody who wants` to know their identity need just look up the IPO documentation held at the Ministry of Finance. Regarding subsequent trading Bank of New York will make its records available to Maltacom at any time it wishes. There was nothing sinister.` Just pure practical financial procedures following the best international standards.

When government critics start raising their defences by referring to the Maltacom `bearer` issue I start worrying.` I realise they need all straws to defend themselves from the rough waters they are leading us into.