Thursday 21st April 2005

 

Reinvesting in growth

 
 
 
 
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New TTMA president Paul Quesnel, right, greets outgoing president Anthony Aboud at the TTMA’s AGM on Tuesday.

Photo: Keith Matthews

I get the impression that many of our manufacturers are not being as aggressive in reinvesting profits in their companies as they have been in the past and as they should be.

This is an observation that has been arrived at not as a result of a some study from the Institute of Business but from talking to business leaders over the last year.

Instead of reinvesting profits in seeking to expand their companies, many manufacturers are taking their profits and ploughing it into local real estate developments or speculating on risky shares in both the local and foreign markets.

Manufacturers are also taking profits from the production of goods and putting it into the entertainment /restaurant sectors or are also looking to convert their TT dollar profits into US dollars.

There are likely to be several factors responsible for this behaviour.

On a world scale, the fact that China is producing almost everything in the world at prices substantially lower than anywhere else in the world may be scaring off some manufacturers from reinvesting in their businesses.

Some local manufacturers may be put off by the higher cost of inputs and the increases in the minimum wage which may pushing up their cost of production to a point that cuts into their profits.

Some may also be hedging their bets in terms of the political and crime situation.

There are, of course, a few notable exceptions to the observation made above.

TCL, the Claxton Bay-based cement company, is pressing ahead with plans to spend a reported US$132 million ($831 million) to expand and modernise its Carib Cement plant in Jamaica.

TCL’s decision to proceed with this three-year investment plan comes in the wake of the decision by the Jamaican government to impose tariff protection on the importation of cement into Jamaica.

Ansa McAl is investing close to $500 million this year in capital expenditure, following substantial capital expenditure in the previous three years.

The commitment of the TCL and Ansa McAl leaders to reinvest in their companies means that these companies will have a substantial advantage over their local peers.

It is also one of the reasons why Subhas Ramkhelawan was wrong when he advised his readers on Monday to sell Ansa McAl.

I put the question of manufacturers reinvesting their profits to new TTMA president Paul Quesnel on Tuesday and his response was that the reinvestment of profits “will become less and less attractive due to the continued weakening of our competitiveness.”

According to Quesnel’s e-mail response, many factors contribute to T&T's decreasing competitiveness such as:

Escalating cost of shipping, both inward and outward due to inadequate physical infrastructure;

Delays in receipt of raw materials and other inputs

Inability to service customers locally and export—decrease in market share;

Unlevel playing field in so far as foreign competition will have easier access to our market and not necessarily ours to theirs. This due primarily to our weak regulatory bodies.

Crime and quality of life

Quesnel said the TTMA is striving to work closely with labour and government for the improvement or even sustenance of our competitiveness.

“We need these specific areas addressed so that continued growth and reinvestment of this sustainable employment sector can again be attractive,” he said, adding that the problems in manufacturing may cause some industries “to exit, but we hope for transit and not full exit as this will not be in the best interest of T&T.”

Enforcing the take-over code

On Monday, the T&T Securities and Exchange Commission (SEC) published a small notice in one newspaper advising the public that take-over bylaws had been published in the Gazette on March 17.

Subject to correction, it is my understanding that once the bylaws have been gazetted, it becomes law.

So the question is will the SEC enforce the take-over code on Arthur Lok Jack and the Ahamad family who bought nine million Guardian Holdings shares worth nearly $400 million in a transaction that began with a put-through on April 1?

According to Guardian Holdings chief executive Peter Ganteaume, the transaction, which was equivalent to five per cent of the financial services group, took the joint holdings of the Lok Jack and Ahamad families to 32 per cent.

By deduction, and assuming that Mr Ganteaume was correct in his arithmetic, this means that the combined holdings of Lok Jack/Ahamad before the transaction was 27 per cent.

As far as I am aware, the threshold for the activation of the take-over code is 29.9 per cent—which means that the SEC might feel that it can direct Lok Jack/Ahamad to make an offer to all of the Guardian Holdings shareholders.

Such action from the SEC would have the effect of making Guardian Holdings, which is now a publicly-listed company, a private company under the control of the Lok Jack and Ahamad families.

I am told that there is a point of view that because the publication of the take-over bylaws was only made public on April 18, that it might be difficult for the SEC to enforce a take-over of Guardian Holdings by Lok Jack/Ahamad—even though the bylaws were deemed to have been published on March 17.

I am also told that this issue is an “interesting” legal point which may benefit from clarification from some of our finer legal minds. If there are any such minds out there who would like to clarify this issue, please shoot me a quick e-mail at [email protected]

 

 

 

 

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