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| Business |
| MTL wrangle may affect Press shares |
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by
Ephraim Munthali, 25 August 2005
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08:05:42
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The uncertainty surrounding the sale of Malawi Telecommunications Limited (MTL) will have a psychological impact on Press Corporation Limited (PCL) shares mainly by rational investors but the conglomerate will survive the scare, analysts said this week.
Early this month, President Bingu wa Mutharika approved that 80 percent of government shares in MTL be sold to Telecom Holdings Limited—a PCL led consortium—in the most important and long awaited privatisation deal in Malawi.
But following protests from the MTL board and some sections of the civil society that the lone ground phone operator has been sold for a song, Mutharika reversed his decision and suspended the company’s privatisation.
With a price tag of $30.7 million, the board argues that the value is too low when compared with the firm’s K7.6 billion assets.
Armstrong Kamphoni, StockBrokers Malawi Limited chief executive, said although Press’s success on the Malawi Stock Exchange (MSE) was due to its reputation stemming from an impressive bottom line and future performance, the MTL saga will have a psychological effect on the group’s shares.
“From a psychological point of view, the controversy will have a dampening effect on PCL shares because investors are disappointed and may not be willing to buy the company’s shares at a higher price,” said Kamphoni.
He said apart from the diversified nature of Press’s portfolio and reputation, the MTL deal helped to make PCL shares attractive.
Kamphoni, however, noted that it is difficult for analysts to project with certainty how much impact MTL will have on Press shares because the phone company’s financial position has not been made public.
“We don’t know to what extent Press may be required to write off bad debts, replace equipment, take over some loans. These are issues that can only come out after buying the company and commencing the consolidation process,” he said.
Douglas Musumba, a stock broker at Trust Securities Limited said Press shares will be stable in the short term as investors hold on to their equity to play a wait and see game while the MTL drama unfolds. PCL shares have been steady at K63 for a week now.
“Naturally, the share price should go down. Some people have already indicated that they want to start selling. If and when they do, they could create an influx of Press shares on the market which can push the price down,” said Musumba.
MSE chief executive officer Symon Nsefula said in July last year PCL shares had picked up both in terms of demand and prices due to news that the group’s consortium would buy the country’s sole telephone service provider.
As at July 20, 2004 the share price of Press Corporation was K14.
Policy reversals like the one on MTL could also scare away foreign portfolio investors who are now looking favourably at Malawi following the new economic programme with the IMF.
But worries about the country’s commitment to embrace investors may force them to either cling to their money and take it to other markets.
National Bank of Malawi (NBM), one of Press’s subsidiaries, said in its latest economic newsletter that the U-turn on MTL is sending wrong signals to would be future investors wanting to spend substantial amounts in conducting due diligence exercises on enterprises lined up for privatisation.
Such reversals, said the bank, do not border well on the integrity of agreements or commitments already made by the government.
“Restoring such confidence could be expensive in the long run,” said National Bank.
NBM said it would be prudent—on business grounds—to insist that performance bonds which are only a requirement from prospective buyers also apply to the Privatisation Commission to the prospective buyers.
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