Retirees as owners of CUC? Could be!

There was an article in Tuesday’s paper stating that the Retirement Fund’s chairman of the Board of Trustees “is seeking a meeting with Governor Fitial to discuss the possibility of having the local pension program invest in the financially troubled Commonwealth Utilities Corp.”
My, oh my, oh my.

I thought that dog of an idea was shot down a couple year’s ago when the government wanted to borrow $40 million from the Fund for CUC, (see Saipan Tribune archives Aug. 11, 2006, “What Does the Future Hold?).

Could it be that the chairman sees an opportunity the rest of us have missed, for instance take revenue from CUC’s exorbitant rates and invest in a candle making factory?

Since Retirement Fund members have property rights in their investment in the Fund’s portfolio, could this mean that members would then have stock ownership shares issued on the basis of a prorated contribution toward the investment in CUC and then their chosen board of directors could hire the chief executive or would the Governor remain the CEO in terms of overriding decisions made by the board?

If the Fund were to make an investment in CUC, how would member’s ownership shares be determined? Would CUC’s huge debt obligations be part of the “acquisition” package and paid off from the initial invested funds? If so, there is no asset value in return for that money? How much of the investment would go for equipment and how much to pay off creditors?

As I read the article in the paper, the possible deal would not be a loan but an investment. There is a big difference. A loan has to be repaid with interest; an investment is very risky particularly when everyone knows the government’s record with its purchases and “buyouts.” Recall the San Roque mall debacle.

If investing in CUC is such a good deal, why doesn’t such successful firms as UMDA go for it? Or a private bank or even the Asian Development Bank (assuming they can lend to a U.S. Commonwealth—I’m not certain).

Oh, I know the chairman might say, “We only want to invest in the utility, not own it.” Not necessarily true. If you are the major investor, you have the power to control decisions and that’s something you would really want from the deal, considering CUC’s dismal track record concerning everything from providing inadequate maintenance to financial management and everything in between.

Will CUC have to issue a formal prospectus describing the offering? Will registration with the U.S. Security and Exchange Commission be required? A smart lawyer could probably make a case that it could be construed as a “pubic offering.”

If such a deal goes through and the Fund lends several million to CUC, it will certainly present a lot of legal issues. The attorneys will love it since some view the Fund as a real “money pot.”

The chairman was quoted as saying, “the Fund’s interest in investing in CUC is still at an exploratory stage and will only proceed upon the advice of financial experts.”

I sincerely hope the “experts” conduct thorough internal rate of return analyses. In my book they would certainly be obligated to do so. The IRR is a very helpful tool and standard procedure when comparing several competing investment opportunities, which, of course, the financial advisors should do. I’ll be watching that process with interest. For those unfamiliar with internal rates of return, an explanation may be “Googled.”

Meanwhile, I suggest Fund members who are interested in the long-term financial security of their pensions contact the Fund chairman and your friendly legislators and let them know your desire in the matter.

I must say, I find something strange when a government employee invests part of his or her earnings in a government pension plan, only to have the administrators of that plan (and thus the member’s money) devise a way to get it back to the government to in turn spend on a decrepit, inefficiently managed utility that the government should have overseen and properly managed in the first place. As my dear sweet granny would say, “Billy, have you taken leave of your senses to invest in CUC?”

By the way, whatever happened to the civil lawsuit #06-00367 the Fund filed on Sept. 11, 2007, against the central government for non-payment of its financial obligation? Am I the only one that finds something incongruent in this potential incestuous relationship on the part of the possible relationship between the Fund and CUC?