The government has just issued details about the sale of half of its 40 per cent shareholding in MIA, amounting to 13.53 million shares, at Lm1.40 each.

This leaves the government with the last 20 per cent. The decision to privatise has been clear for years and that privatisation will now be at a faster pace than before has been clear for some time. The offering circular, however, states that "based on discussions with the government, the company is not aware of any plans of the government to further reduce its shareholding in the company. However, there can be no assurance that the existing government, or any future government, will not decide to reduce its stake in the future".

Indeed, it actually seems that the government has in fact already decided what to do with the remaining 20 per cent shareholding since the minister responsible replied to one of the local newspapers that in line with the government's privatisation programme "a complete divestiture of the government's MIA stake was indeed in the pipeline". This seems to be more consistent with the government's plans.

Further, this sort of privatisation, with substantial sales to the public and with substantial shareholdings in the hand of a management group which is really bringing something to the table, is the sort I prefer, as I have often written. It is also the model which, I believe, is sustainable in society in the long-term.

Such a model has many strengths, including partnering via the shares with consumers and employees, which is a very important consideration especially when privatising monopolies. Privatisation in Malta always went smoothly except when either minority shareholders or the public felt they were being disenfranchised.

One of the model's weaknesses is the usual agency problem because, unless there are clear safeguards written into the management and other operational agreements, and unless these are enforced, the core management would with time tend to manage the company for its own interests and not of the general shareholders.

We see this agency problem all over the place; most notoriously, there are the problems created by high executive compensation in listed companies abroad. How to fix and regulate executive compensation - adequate but not highway robbery - to protect shareholders is today the cutting edge of management research.

So far, the best antidote has been disclosure, which is often not enough. But there are many developments in corporate governance on the way.

From a policy point of view, therefore, it is a good thing that the government sells its remaining 20 per cent. From a market point of view, from indications so far, it seems that the support for the shares in the market is such that another 13.53 million shares could be absorbed in a short while without much difficulty. Since the shares are already listed, the sale would just be another step along the way and could be fitted anywhere; selling, say, the remaining shares this time next year would make sense and the government has a good chance of getting even more for them.

Passenger movement, for example, has increased but travellers' expenditure has declined leading to a fall in retail sales between 2004 and 2005, albeit MIA has managed to push up its take from the retail shops from 13 per cent to 14 per cent. Again, the nature of the company is such that while concessionaire's turnover charges fell in liri terms as a result of the fall in the spend (in spite of the mentioned increase in percent take), this was the only item that decreased between 2004 and 2005 - all other revenue items were up, with total revenue increasing by Lm2.1 million, or 15 per cent, to Lm16.4 million.

Since MIA managed to marginally lower operating costs, the extra revenue fed operating profit.

Dividend so far has been attractive at 7c23 gross for 2005 financial year. The directors' report used to say that "The policy of the company is to distribute all the profits available for distribution in each year, subject to the company retaining adequate levels of working capital".

In the offering circular we see this statement was further qualified by the words "... and other requirements within the company". This last addition somewhat modulates the message, making dividend distribution more restrictive, but from the rest of the circular it does not seem that the company modified its past intentions.

Maintaining a good dividend pay-out is a good thing because it is probably the good dividend and the fact that MIA operates a national monopoly (and thus the promise of higher profit in future) which is keeping up its capitalisation at a price-earnings ratio of over 29.

The growth strategies adopted by MIA, and mentioned in the circular, seem practical and should bear fruit and perhaps merited amplification. I was for a time concerned with the business park project because this would have meant dilution or rather heavy borrowing by MIA but the last things I heard about it indicate that the company is taking a very pragmatic approach to the project and is likely to involve equity from partners.

The offer opens on Thursday and there is a general offering (against a normal application or by auction, if for more than 50,000 shares), an offer to holders of Malta Government Privatisation Bonds and an employee offering. Interested persons should read the offering circular which contains information about the offering, the company and its business, including its relationship with significant shareholders and the risk factors.

pvazzopardi@usa.net

Paul V. Azzopardi is managing director of Azzopardi Investment Management Limited (www.azzopardi.com) which is licensed by the MFSA to provide investment services, including stockbroking. Mr Azzopardi or related parties, including the company, and their clients, have an interest in securities mentioned.

This article is only meant to provide information, which the writer believes to be accurate at the time of writing, and is not intended to give investment advice and its contents should not be construed as such. The value of securities, and the currencies in which they are denominated, may go down as well as up. Readers are requested to seek professional financial advice tailored to their own personal circumstances.