SCRUTINIZING THE BTL PROSPECTUS

At a much awaited and publicized event on October 15, 2010 the now Government-owned Belize Telemedia Limited (BTL) launched its prospectus in an effort to lure both Belizeans and foreigners into buying shares at what they have dubbed ‘the most profitable enterprise in Belize ever”. From the onset we must premise our analysis by saying that because of the way the financial statements are presented it is difficult to dissect all the areas and it is even more complicated to provide a more in-depth analysis.  Various professionals have coincided in opining that the format used to present the information contained in this prospectus gives the impression that it is intended to hide some important facts.

At a first glance, and after listening to the fanfare surrounding this issue, the prospectus presented by BTL makes the purchase of shares in BTL seem more than an attractive investment. However, in deeper examination of the document there comes to the fore many anomalies and concerns surrounding the data presented and assumptions made therein.  The forecasts made in this document seem fundamentally flawed and many are advised to seek professional help before venturing to invest based on what is only evident to the ordinary eye.

Based on the numbers offered in the prospectus we see the need to point out that BTL’s fiscal year 2009 remains unaudited. The fact that BTL is unable to present its latest audited financials is questionable as the audit is usually completed by June to July after their March year end.  .  As an investor it would be more than wise to demand that the Audit be completed as there may be more facts available to assist in decision making.  It appears that the audit report due 2010 has been intentionally withheld because its report may contain information that could be detrimental to the prospectus.

Usually, financial forecasting requires that one makes some general and many times specific assumptions that would need to hold to ensure that your business model is good. In economics this is referred to as “Ceteris Paribus” all other things remaining constant. However, it must be highlighted that the assumptions of the BTL prospectus, with regard to revenue, are very vague and generally point to its performance being linked to stronger economic growth over the next five years.  Usually in a prospectus, details of growth by revenue stream should be disclosed together with pricing details and volumes; we do not have any assurances that the economy will rebound as they expect it to, this is a major risk.  And based on the dismal performance of our economy over the last two and a half years of this UDP government, the assumption mentioned above seems ludicrous.

The reversal of the Long Term Debt of $45m to the British Caribbean Bank and crediting it to the Telemedia’s equity in 2011 is not in conformity with generally accepted accounting principles (assumption 1.7).  Prudent accounting policies generally require that contingent assets not be recorded or recognized but instead disclosed in the financial statements.  In this case, the contingent asset is the award by a court that the $45M loan was unlawful which would give them the privilege to reverse the loan when that ruling is made.  BTL has unilaterally decided to reverse the loan with no real solid court order and or other justification to back it up.  It is our view, after consulting with various accountants that the debt should be kept in the books as a contingent liability and interest accrued up to the point when a court order rules otherwise.  The effect of booking this transaction as BTL has chosen to do is to increase the Company’s equity which enhances its financial position. This again we believe was done with an express intention to make the company seem a more attractive investment.

The recording of tax assessments creates a tax expense for the Company and a liability to the Government.  In our view, assumption 1.6 of the prospectus erroneously credits the assessments to the Company’s Equity. This entry gives the impression that the Company is acting as the Government to rightfully collect/credit the assessment to its cash/equity.  This particular entry needs further explanation as the expected result of the transaction differs from the forecast.  The effect of the transaction is to increase the Company’s equity which again enhances BTL’s financial position. Is the intention again to misinform potential purchasers of shares?

We also found discrepancies in the forecasted cash flow for 2010.  In the prospectus it is reported that the dividend paid amounting to $18.3M represents the dividend payment for two years, that is, 2008/9 and 2009/10.  It appears that the dividend paid for 2008/9, amounting to $8.9 M, has been double counted in 2011 as this was partially paid in February 2010 when Telemedia held its first Annual General Meeting (AGM) under the ownership of the Government.  From our point of view, there is a double counting error in the 2011 forecast. Again we ask the question, is this intentional act?

Finally, the share price of $5.00 intends to undermine the true value of investments from the predecessor owners.  Experienced professionals in the area are of the view that the share price valuation methodology omits certain key elements because at the current offer price, there is no premium to accrue to the predecessor owners.

From our examination of the information contained in the prospectus, it is evident that the numbers were doctored to have the financial position of BTL appear in a more healthy position.  Obviously this was done with the intention to entice investors to participate in the sale of shares. Potential buyers of BTL shares would be well served to seek some level of expertise in determining the true risk of investing in BTL whose true financial viability cannot be determined with the available information. Several questions go unanswered with the figures presented and projections made in the BTL prospectus made public October 15, 2010.

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