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Who really benefited from IPO?

Thursday, May 8, 2014
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Mary King

Last week, in this space, in response to a Sunday Guardian column by Maxie Cuffie, the question was asked: Did Howai undervalue First Citizens shares?


To answer the question asked last week more directly: of course, the Minister of Finance undervalued the IPO price of First Citizens. The more pertinent question is why did he undervalue the price at the IPO?


The answer to that question was provided for all prospective shareholders of the bank at Page 16 of the prospectus under the rubric Purpose of the offer.


In this statement of purpose, the Ministry of Finance referred to the 2011 budget speech in which the Government outlined a capital markets programme that would seek to widen and deepen the domestic capital market as a means of expanding the domestic economy and in the process improving productivity and generating quality jobs through: 


 Promoting efficiency by exposing businesses and services to the greatest possible competition


 Spreading share ownership as widely as possible among the population as well as encouraging greater participation by nationals in the ownership of state enterprises


 Obtaining the best value for each enterprise which is sold by the Government


By divesting a portion of the State’s interest in First Citizens, the Government provided “investors with a long-term investment in the banking sector, add(ed) to total stock market capitalisation and at the same time dampen(ed) inflationary pressures,” according to the prospectus.


The reason the shares were sold to the population at less than their intrinsic value was because the Government wanted to spread share ownership as widely as possible among the population in order to ensure that much of T&T’s middle classes as possible benefited from both the tax-free capital gains and the tax-free dividends resulting from direct ownership of the bank.


It seems to me the fact that the bank has declared or paid $1.66 in dividend income and its share price has moved from $22 to around $38 a share must be an indication that the initial public offering (IPO) was an outstanding success.


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