|Moody’s assigns double credit negative to BTC talks|
Guardian Business Editor
Published: Aug 02, 2012
Moody's has released a damning assessment of the government's campaign to gain majority control of the Bahamas Telecommunications Company (BTC).
In a 26-page report on Moody's global credit outlook, covering nations from China to Slovakia, The Bahamas earned an entire page on the controversial issue. According to the rating agency, the move by the Bahamian government represents a double credit negative – both for the country, and the parent company of BTC, Cable and Wireless Communications (CWC).
In fact, Moody's called the government's buyout negotiations “erratic”, and from a bird's eye perspective, damaging to foreign investment.
“The buyout negotiations demonstrate the government's erratic approach to its participation in the telecom sector, and is a reversal of the government's previous position on divesting and liberalizing the sector,” the report stated. “We had expected the liberalization of the telecommunications sector to occur in 2014. Such an about face is a signal of broader policy uncertainty and a deterioration of the operating climate for foreign investors.”
From a financial point of view, Moody's felt the fiscal costs of acquiring two percent equity would be “relatively modest”, should CWC be willing to sell. But analysts in New York insisted that the purchase, penalty fees and potential litigation costs place the economy in jeopardy “at a time when its finances are deteriorating”. With these factors in mind, Moody's assigned a “credit negative” to the policy.
The report also included broader implications concerning CWC.
If CWC was compelled to sell a two percent stake, which Moody's referred to as a “probable scenario”, the company would likely push for continued managerial control of BTC. Losing that equity interest, however, would be a “significant credit negative” for CWC, preventing the company from being able to fully consolidate BTC in its audited accounts.
Last August, Moody's downgraded the country's outlook from stable to negative (A3 negative), while affirming the A3 government bond ratings. According to the rating agency, the Bahamian fiscal deficit will be around 7.4 percent of GDP in 2012, and government debt has accelerated to over 51 percent of GDP from around 30 percent in 2007.
The announcement by Wall Street, sure to send shockwaves through The Bahamas, offers perhaps the dramatic significant twist yet in the Progressive Liberal Party's (PLP) campaign to gain majority control of the country's only mobile services provider.
CWC purchased a 51 percent stake in BTC in April 2011 from the previous administration.
Since coming to power in May, the PLP has stayed the course on a key campaign promise. On Monday, Prime Minister Perry Christie announced a hand-picked delegation to negotiate with CWC executives later this month.
Businessman Franklyn Wilson, former Attorney General Sean McWeeney, attorney Rowena Bethel, and former BTC CEO Leon Williams make up the Bahamian team.
Shortly thereafter, Moody's announced it had begun a probe into the government's negotiations with the parent company of BTC. Edward Al-Hussainy, assistant vice president and analyst at Moody's, questioned how the PLP intended to pay for the majority interest, and noted that the reasons behind the takeover were “not clear”.
The official report from Moody's, obtained by this newspaper, comes just two days after the apparent probe.
Christie characterized the rating agency’s probe as “unfair”.
“You can do the mathematics and find out if two percent will give us the majority of interest, you can do the mathematics based on what they paid for it,” the prime minister said. “They can’t come to me with a special value and so forth. That’s why we are going to have discussions. We are motivated by what we regard as the best interests of the Bahamian people.”
The rating agency, however, has cast doubt on CWC's cooperation with any talks over giving up majority control.
“BTC accounted for 12 percent of CWC's fully consolidated revenues and 10 percent of its EBITDA fiscal 2012, which ended March 31, and is CWC's only Caribbean asset that is currently performing strong,” the report added.
The rest of the company's operations are under pressure, Moody's claimed, so BTC factors heavily in its future plans. Tony Rice, the CEO of CWC, recently noted during a conference call with investors that he intends on convincing the Bahamian government that the company is in the best interest of the country.