Whose Land is it Anyway

20^th April 2007

The Malta Independent - Friday Wisdom

The Maltacom volcano erupted again. After months of relative quiet the issue about the land at Qawra, reportedly carrying a commercial price tag of Lm10 million, has come back to persecute the government for bungling it in the privatisation process of Maltacom.


Some background would help readers to understand the issue in its proper perspective.

Until 1998 Maltacom was a wholly owned government company. Among the various real estate assets it owned there were three pieces of land which clearly had a high commercial value and which were not being used for the core business of the telecom company.

The Labour government decided to sell 40 per cent of the equity of Maltacom in 1998 keeping majority control through the remaining 60 per cent shareholding. The sale was done through an IPO (Initial Public Offering) on the local as well as on the international markets. Apart from the involvement of Mid-Med Bank, the government hired HSBC and Banque National de Paris (since then BNP Paribas) to advise it on the best value for the IPO launch.

When the two international banks produced their own valuation of the equity on offer the point was raised regarding the value given to these valuable pieces of real estate property which were not being used for the core telecom business. The answer was that no such specific value was being given as the company was valued for the IPO as a core telecom company and the value was based on the expected future growth and cash flows from such core business.

In view of this the Labour government at the time decided to transfer out of Maltacom the valuable land at St Julian’s prior to the IPO. The land was transferred to a separate government owned company and in fact the PN government sold this land for handsome millions to the promoters of what is currently known as the Pender Place project. The wisdom of ejecting such valuable land out of Maltacom prior to the 1998 IPO was proved by subsequent events.

The land at Qawra was somehow allowed to stay within Maltacom’s real estate portfolio. Memory is playing tricks on me and I don’t recall exactly why this was not included in the transfer out package with the Pender Place land but I believe that either Maltacom had made the case that they needed it for their own core business or the land was held on very short-term tenure which made its commercial value of no great significance.

By the time the current government privatised the remaining 60 per cent of Maltacom through secret bidding on a trade sale basis to investors from Dubai in 2006, two things had happened since the first IPO. Firstly, Maltacom was no longer 100 per cent government owned but had 40 per cent private ownership. Secondly the land at Qawra had multiplied in value both as a result of the general increase in land prices but also because Maltacom had paid a substantial sum of money to purchase the freehold tenure for the land in question.

When the 60 per cent shareholding was sold to Dubai Investors the government sold it lock stock and barrel at a price some 25 per cent below its then current market price without stripping the company of assets which were not essential for its core business and therefore certainly not included in the valuation model which again was reportedly based on the enterprise growth potential and future cash flows.

In my criticism at the time I had singled the land at Qawra and the excessive cash reserves of Maltacom as assets which should have been extracted out of Maltacom prior to its final privatisation without any negative effect on the negotiated price once such extraction would not prejudice the company’s earnings potential from its core telecom business.

This could have been done by a commercial sale of the land at Qawra and the profits resulting therefrom as well as excessive cash reserves being distributed to the then shareholders, i.e. 60 per cent government and 40 per cent private, as a special dividend prior to final privatisation. I did not just write about it after the event. I had privately spoken to people in authority recommending that this be considered when rumours started circulating that sale of Maltacom was being negotiated without such precautions.

Having bungled the issue the responsible minister tried to parry subsequent criticism by stating in parliament that government had an agreement with the Dubai investors for transfer of the Qawra land title to government against transfer of full title of various shops and offices used by Maltacom for its core business by title of lease from government. Nothing has happened since and the opposition is now accusing government of giving a Lm10 million present to the new majority owners of Maltacom.

In reality the land in question belongs to Maltacom plc and it is not a matter to be decided solely through negotiations between Tecom as majority shareholders and the government as the former majority shareholder. Minority shareholders’ rights must be respected.

If Maltacom feels that it does not need the land for its core operations it should sell it through a transparent bidding process. The resulting gains should be distributed to shareholders as a special dividend going some way to compensate the minority shareholders for the negative effect on their share price since Tecom bought over their majority stake at a price below the then applicable market value.

If Tecom agree that the privatisation price does not include the true commercial value of this land then they should, as a gesture of goodwill, pass on the special dividend cheque to the former owner, i.e. to the people of Malta through their government, that once again has succeeded to bungle yet another privatisation process.