Last week Thursday, Cable and Wireless Communications (CWC), the London-headquartered telecommunications group that owns 49 per cent of TSTT, announced that it had completed the sale of its 49 per cent shareholding in Fiji International Telecoms Ltd (Fintel) to Amalgamated Telecoms Holdings Ltd (ATH) for a total cash consideration of approximately US$10.6 million.
There are a number of similarities between TSTT and Fintel that raised a number of questions in my mind:
• Like TSTT, Fintel provides international telecommunications services as well as wireless broadband and Internet service provider services. TSTT also provides mobile services in competition with Digicel;
• Like TSTT, the remaining 51 per cent of shares in Fintel are owned by the government of the Republic of Fiji with Cable & Wireless Communications being the minority 49 per cent shareholder;
• Like TSTT, the Fiji government's stake in the telecommunications is held by a holding company. In Fiji's case, the holding company is Amalgamated Telecoms Holdings Ltd (ATH), which purchased the 49 per cent stake from Cable & Wireless.
In the TSTT case, the holding company is National Enterprises Ltd (NEL), which owns the 51 per cent stake in TSTT. As an interesting side issue, ATH is involved in the provision of a wide range of telecommunication services in Fiji through its wholly-owned subsidiaries Telecom Fiji Limited and Fiji Directories Ltd and its 51 per cent shareholding in Vodafone Fiji Ltd. The principal activities of the ATH Group are providing telecommunication services, compilation and publishing of the Fiji telephone directory and the operations of mobile telecommunications networks. In my view, the decision by Cable & Wireless to sell its 49 per cent stake in the Fiji company immediately raised the issue of the English group's intentions with regard to its 49 per cent shareholding in TSTT. Is Cable & Wireless interested in maintaining a long-term relationship with the Government and people of T&T, through NEL, or is Cable & Wireless getting ready to sell its shareholding in TSTT?
There are two clues as to what the management of Cable & Wireless might be thinking. In the statement accompanying last Thursday's announcement, the group said: "The divestment is consistent with CWC's strategy to reshape its portfolio and develop the business around full-service telecommunications operations in a series of core regional hubs." Cable & Wireless operates its businesses through four regional units-the Caribbean, Panama, Macau and Monaco and Islands. The question then becomes: Does the strategic decision by Cable & Wireless to "reshape its portfolio" include or exclude its shareholding in TSTT?
Secondly, the financial fortunes of Cable & Wireless have declined substantially in the recent past and the company may be looking to raise some cash in order to give itself some breathing space. The evidence of the company being in something of a financial pickle can be found in the interim management statement that it issued on February 10. In truth, the company is bleeding money in Jamaica where, according to the February statement, mobile subscribers "declined" and its market position "remains difficult," as it continues to "experience poor financial performance in this business." As a result of the poor financial performance by Cable & Wireless in Jamaica, it expects "a significant non-cash write-down of our carrying value of this asset as part of our full year results," which will be announced in May.
In the February announcement, Cable & Wireless also revised downwards its earnings projections for Panama, where it has a large operation. In Panama, the company saw "increased competitive intensity with the introduction of mobile number portability" which impacted its earnings despite leaving market shares largely unchanged. As a result, the company's earnings before interest, taxes depreciation and amortisation (EBITDA) were expected to be in the region of US$127 million as opposed to the US$270 to US$295 million that it had stated previously. Cable & Wireless is also probably analysing the return on its investment in TSTT.
The Cable & Wireless share of TSTT's after-tax profits in the year ended March 31, 2010, was US$19 million. But that declined by more than half to US$7 million in the year ended March 31, 2011. There are strong indications that TSTT's performance in 2012 will be in line with its 2011 performance. In NEL's nine-month interim report, published on February 17, chairman Kenny Lue Chee Lip, referring to NEL's diversified portfolio, said it continued to be a source of strength "with the strong performance of Tringen and NGC NGL working to partially offset weaker than expected results from the other investees," which include TSTT.
While Cable & Wireless may come knocking on the doors at the Twin Towers in downtown Port-of-Spain in order to convince the Government to buy its 49 per cent stake in TSTT, here is something that should be considered in this country. The Cable & Wireless issued share capital is 2.66 billion ordinary shares and it has a market capitalisation of about £809 million, which according to my calculations is TT$8.4 billion, based on yesterday's RBC Royal Bank foreign exchange rate. What about if NEL were to make a friendly approach to the directors of Cable & Wireless to take over the company, either by itself or in partnership with an international telecommunications player? The Corporation Sole (the Minister of Finance) owns 66 per cent of NEL, which is 396,324,700 shares. Those shares were worth $6 billion as of Wednesday morning.