MIA's Unusual Great Expectations

The Malta Independent 
 

Something unusual though not unexpected happened at Malta International Airport.

Unusual in that it is quite extraordinary for the Prime Minister and a Senior Government Minister to publicly express doubt about proper corporate governance in the allocation of a perfumery shop at MIA by a company that though privatised is still 60% owned by Maltese investors two-thirds of which by the government itself.

Not unexpected because the way the privatisation deal was structured it gave to the 40% equity held by foreign-dominated consortium a management agreement through which it has substantial, if not total, freedom to take operative decisions; even to pay themselves substantial management fees thus recovering with the left hand the original investment made with the right hand, before operating profits are available for distribution among all shareholders.

This is probably what the I T Minister meant when he said that government could not intervene in a case where there was a minority shareholding of 40% and all decisions of an administrative and financial measure were taken by the management. Note that the board of directors, where the government has representation even if a minority one, does not take such decisions. These are taken by the management which is totally controlled by the foreign dominated consortium.

One can understand better now why at the IPO stage the government could get a premium price for disposal of 40% cum management agreement but only at the expense of the value of the remaining 60% which are now quite powerless regarding the company’s operations.

It also explains why the 20% issued for public subscription last November are already trading at 8% discount when the MSE index is 3% higher than it was last November.

I am not privy to the full details of the case. It was reported that a concession was given by the Manager to a new tenant that is somehow related to one of the shareholders in the investment consortium without a process of fair and open bidding. However the fact that both the prime Minister and the Minister for IT felt it necessary to pronounce themselves so explicitly on this case even whilst the matter is being disputed in court indicates that there is serious concern on the way this national monopoly is being run by foreign operators who have been given total control through a minority investment.

And government’s interest in this case comes at various levels. As 40% shareholder in the company it has every right to ensure that the company is run with highest standards of corporate governance as only in this way can minority shareholders rights be protected.

If the manager is not adhering to the expected levels of corporate governance then surely the Board of the Company has to have the right to pull up the manager to protect the reputation of the organisation. Or has boardroom control also been ceded to the minority shareholder? Have the directors representing government and small local shareholders given the manager the right to renew or cancel concession without fair and transparent bidding? Have we allowed a national monopoly to be run like a family business?

Government has interest in protecting the small private investors who now own 20% of the company’s equity.

But government has also the broader interest to ensure that privatised companies, especially when they still enjoy monopoly rights, adopt the highest levels of corporate governance and not take any easy route to recover their investment by favouring themselves as managers and fellow investors as shareholders to the detriment of the remaining shareholders that among them still form a majority but whose effective rights where compromised through the management agreement. This same defective model was used at Maltapost. Should we await great expectations there too?