As someone who has consistently used this space to advocate that locals invest their surplus funds in companies that are listed on the local stock exchange, I have owned shares in National Enterprises Ltd (NEL) on at least three occasions.
Although I am not now a shareholder of NEL, it is one of the stocks on the local market that is always watched very carefully for the appropriate entry point. That is because I am on record as describing the state-controlled investment holding company as one of the single best interventions that any government has made in ensuring that middle-income households in this country are able to build long-term wealth.
For those readers who may not know much about NEL, it was established in 1999 as the vehicle to hold the state’s shares in some of the companies in which it had investments, in a way that allowed local individuals and institutions to share the risk of owning these companies.
Some 66 per cent of NEL is owned by Corporation Sole, the entity through which the State vests its shares in state controlled companies, 17 per cent of the investment holding company is owned by the National Gas Company (NGC) and 17 per cent is owned by T&T individuals and institutions. To make it simple, NEL has just over 600 million shares in issue. The State owns about 400 million (exactly 396,324,698), NGC owns about 100 million and T&T’s individuals and institutions own about 100 million shares. The State’s stake in NEL was worth $4.28 billion at the close of trading on Wednesday.
NEL was listed in 2001, at which time it owned the State’s 51 per cent stake in TSTT, its 51 per cent stake in National Flour Mills, and the same percentage in the Point Lisas-based ammonia company Tringen.
At the end of 2001, NEL acquired a 20 per cent stake in NGC NGL, which owned 51 per cent of Phoenix Park Gas Processors. In 2003, it acquired 37.84 per cent of the shares in NGC LNG, which owned a ten per cent stake in Atlantic LNG’s Train 1. NEL paid NGC for the shares in both Phoenix Park and Atlantic, by issuing 100 million stocks to the state-owned the investment holding company.
In other words, the ministers of finance at the time, acting as the Corporation Sole, directed NGC to transfer some of its shares in Phoenix Park and Atlantic LNG to NEL so that local individuals and institutions could benefit from the dividends NEL has paid in the last 16 years as well as the tax-free capital gains from the increase in the share price.
In that sense, NEL has always been a tool of State policy, which at the time was to ensure the widest possible participation of as many T&T nationals as possible.
That State policy has allowed the 5,000 individuals, pension plans, credit unions and trade unions who own NEL shares to benefit from the dividend income generated by the company since inception, which is closing in on $1.5 billion. That’s because the company has a mandate to distribute at least 90 per cent of the profits it receives from its various shareholdings as dividends to its shareholders.
NEL was also a tool of State policy when, together with the National Insurance Board and the Unit Trust Corporation, it acquired a ten per cent shareholding in Phoenix Park Gas Processors from a subsidiary of General Electric Capital Corporation in 2014 for US$168 million.
As well, NEL was a tool of State policy when it acquired a 10 per cent stake in PowerGen from a subsidiary of BP.
Sell TSTT, NFM
If NEL can be a tool of State policy for the acquisition of shares, is there any reason why the company should not be similarly utilised in terms of the divestment of shares and the conversion of the investment holding company into an entity that pays US dollar dividends?
NEL has significant investments in five companies: Tringen, LNG and Phoenix Park (which generate US dollars) and TSTT and NFM, which generate TT dollars.
In order to convert NEL into a company that receives only US-dollar income, and therefore is in a position to make US dollar dividend payments to its shareholders, the following could be considered:
If the Government were to sell NEL’s 51 per cent stake in the two companies that generate TT dollars, TSTT and NFM, that could allow the Government to convert NEL into an entity that generates US dollars from the sale of ammonia (from Tringen), LNG (from Atlantic) and propane, butane and natural gasoline (from Phoenix Gas).
In addition, the sale of TSTT and NFM would provide NEL with a lumpsum of about US$500 million that would allow the company to do two things:
• Make regular and predictable US-dollar dividend payments.
The reaction of the local stock market to the announcement by TTNGL chairman, Gerry Brooks, that that company was considering making US-dollar dividend payments was quite noticeable.
Since TTNGL is one of NEL’s investee companies, I don’t think it would be asking too much for the dividends that NEL receives from TTNGL, Tringen and TTLNG to be paid to NEL’s investors in US dollars, and
• Reinvest its US dollars in new US-dollar investments. Immediate candidates for new investment by NEL would be some more LNG shares, TGU and MHIL. A longer term candidate could be the Mitsubishi DME plant in La Brea.
Can NEL acquire Clico?
I wonder if it may be possible for NEL to make a bid for all of Clico by leveraging its balance sheet and cash flows—and perhaps doing a rights issue—to buy the insurance company’s assets.
That would provide NEL with a whole new range of investments, including significant shares in Angostura, Republic Bank, Methanol Holdings (International) Ltd, WITCO and One Caribbean Media. Those investments can either be held for the long-term or sold for US dollars.
Alternatively, NEL can set up a separate, listed holding company that could acquire the Clico assets. NEL 2 could be owned by NEL, NIB and UTC as well as local individual and institutional investors.
Changing NEL
In my view, all the companies on the local stock exchange should be encouraged to pay dividends quarterly instead of twice a year.
That would especially benefit a company like NEL, whose shareholders could come to view the stock almost like an annuity, in that they make an investment in the company and they get back regular and predictable dividends on their investment.
While there would be an increased cost in processing these additional dividend payments, I believe that quarterly payments could make NEL more attractive and appealing to a whole new group of investors, both individual and institutional.
I see NEL as being a means of mobilising local investment in a way that ensures that T&T institutions and individuals benefit from the inevitable upswing in both the price and production of NEL’s investee companies.