Jamaica – The Government, in the documentation supporting its request for
US$1.3 billion in loans from the International Monetary Fund, says that it
marked 20 state-owned firms and parastatal entities for divestment.
All the institutions with for-sale
shingles on them have not been identified. But we suppose they include big
lemons like Air Jamaica, which is to be taken over by the Trinidad and Tobago
government-owned Caribbean Airlines, and the residual assets of the Sugar
Company of Jamaica in which the administration has been unable to maintain the
interest of potential suitors.
Obviously, the divestment of such
deeply indebted assets that have lost so much money, that operate in difficult
markets and will require huge investment to rehabilitate will best be achieved
by private treaty in negotiated deals.
For most of the rest, we support
the suggestion of investment banker Chris Williams that the administration
should consider sales via listings on the Jamaica Stock Exchange.
Mr. Williams’ idea, which has some
support from Finance Minister Audley Shaw, who has raised the prospect of listing
the heavily indebted Port of Authority of Jamaica, makes sense on several
In the first instance, these IPOs,
if properly picked, should be relatively easy to sell. For, among the
divestment bundle, we are sure, are some worthy assets which, even if they are
not now profitable, demand just decent management for a turnaround.
Moreover, as Mr. Williams suggested
at last week’s JSE investment and capital markets conference, these
IPOs would help to stimulate the equities market, bringing in new players,
while allowing the Government to raise non-debt cash. Indeed, such a move would
be timely, given the lower yields that would come from the Government’s
domestic bonds with the ‘voluntary’ restructuring of its domestic debt at
longer tenors and lower interests.
The JSE could help to facilitate
such offers by simplifying the listing arrangements, including the application
of the rules of its junior exchange – no matter the size of the offers.
But there is another potential
creative way, as has been suggested by this newspaper in the past, that the
Government could use the IPO shares to help offset debt obligations.
Currently, it owes teachers around
$7 billion in back pay from the market-rate adjustment scheme it began implementing
in 2008. It has agreed to a payment schedule to clear the debt, but will soon
face another big bill from the reclassification of the of health workers.
Additionally, civil servants’ wages
are being frozen for two years, but there will be some adjustments to be made.
And at the end of the freeze period hikes will be inevitable.
It is possible, we suggest, that
some of the existing, as well as future wage obligations can be settled with
equity stakes in divested companies. It might be possible, assuming that the
IPOs could be done in relatively close sequence – if not simultaneously –
through a mixed portfolio of equities.
The Government’s 1990s encouragement
of market participation by private-sector workers through employee
share-ownership schemes was hardly a success. Here, though, some creative
thinking could create a new class of owners for the equities market.