Browne Not Satisfied With Lovell's Response

Details

Business News

Wednesday, 06 April 2011 16:34

By caribarena news

Antigua St John's - City West MP Gaston Browne has defended his alternate suggestions for the State Insurance Corporation. This followed Finance Minister Harold Lovell's assertion on Tuesday that while Browne's plan had merit, it was not as satisfactory as the government's plan for divestment.

Now, Browne has issued further details to support his case.

His latest statement is reprinted below.

Hon. Gaston Browne in a media statement said that Minister Harold Lovell has failed miserably to support his assertion that the bilateral sale of State Insurance Corporation  (SIC) will result in “best value for the assets and shares” of SIC and has called upon the Minister to provide his justification. Browne responded that ‘Perhaps the Minister meant best value for the UPP cronies and so-called “strategic partner,” certainly not best value for the Government and people of Antigua & Barbuda.’ 

MP Browne provided the following rationale to justify the superiority of the  proposed ALP’s divestment model to transform State Insurance into a publicly traded company with the Government and people of Antigua & Barbuda retaining controlling interest (51 percent) of the shares.   Here follows his rationale:

1.    The strategic partner which most likely will be a foreign entity would result in the effective foreignisation of the ownership and control of State Insurance Corporation despite the best efforts of the Government to limit the foreign strategic partner’s shares to 49 percent.

2.    UPP’s model will result in the net repatriation of profits to a foreign country.

3.    The very structure of the bilateral sale will result in the cannibalization of the assets of SIC and would reduce the value of the firm.

4.    Reduction or elimination of the corporation’s goodwill and the value of SIC.
5.    The bilateral sale is far less transparent than the listing process and could give rise to certain corrupt practices including collusion from insiders thereby reducing the realisable value of SIC.

6.    A public listing could result in a share premium of say 25 to 30 percent which will maximize the value of the firm as opposed to a bi-lateral placement.

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7.    The Strategic Partner would seek a bargain price and more than likely would demand corporate tax holidays and the waiver of withholding taxes for several years, thereby reducing the net realizable value of SIC.

8.    The opportunity to increase the communal benefits of SIC, enjoyed by the Government and people of Antigua & Barbuda will be lost and the existing benefits would be reduced or eliminated after the Government loses effective control and ownership.  This will result in:

•    A reduction in credit to the Government to cover premium payments and in increased cash flow pressures on public finances to cover premium payments as and when they become due and payable.

•    Elimination of an average of EC$10M annually in sustainable profits

•    Opportunity Cost of tens of millions of dollars from the recommended strategic expansion into the Caribbean and beyond.

9.    The concentration of the oligopolistic insurance market will result in higher premiums and Government will lose the capacity to manipulate State Insurance premiums to regulate insurance premiums and keep them affordable.

10.    Significant dilution of the popular (communal) national ownership of SIC, elimination of the present ownership pride, and depravation of the opportunity to create a world class publicly traded insurance company.

11.    Displacement and foreignisation of SIC’s Management.

The MP for City West further argued that:

A publicly traded SIC would have access to capital to support its business expansion or market penetration or diversification strategy into property development to include residential housing, commercial development possibly to include hotels and shopping plazas to the benefit of the state.

Unlike the assertion of Harold Lovell, a strategic alliance partner need not be a substantial equity holder.  The strategic partner could be a minor shareholder of State Insurance or alternatively, could be sold redeemable preference shares to preserve the effective control and ownership of SIC by the citizenry.

State Insurance would have sufficient financial resources to purchase the relevant skills and technology that may be needed to support its market penetration strategy.

It is important for the Government and people to maintain a controlling interest in State Insurance in order to protect the best interest of the citizenry and to create value (wealth) though the earning of profits from its proposed overseas expansion for the collective benefit of all Antiguans & Barbudans.

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He said that any concerns that the government may have about conflicts in government regulating and competing in the insurance market could be resolved by the introduction of a competition authority with the supporting legal and regulatory framework.  

MP Browne challenged the Hon. Minister to provide tangible supporting arguments to justify the impracticability of the ALP’s proposed divestment model and the superiority of the ill advised bilateral sale and total foreignisation of State Insurance Corporation.  In the absence of compelling reasons to support the bilateral sale, he said that the UPP Government has a moral obligation to review their model to provide best value in the best interest of the population.

As an aside, MP Browne said that that the coincidence in the timing of the IFC’s investment in Sagicor for expansion into the Caribbean, and the time line for the sale of State Insurance is rather curious. He called upon Minister Lovell to disclose to the nation if Sagicor is the undisclosed strategic partner in waiting.

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