“Commonwealth Shares — Profiting from Privatization”

By Travis Johnson, Stock Gumshoe, November 29, 2007

The folks at Stansberry and Associates have come out with a new newsletter, perfectly designed to focus on exactly what everyone seems to want right now: Foreign Stocks. This one is called International Strategist, and they’ve got a teaser campaign designed to get you on board with a trial subscription.

The teaser campaign is generally going out with two different headlines, one is “Worried Americans Tap into British Gov’t-Issued ‘Commonwealth Shares'” and the other is the somewhat more colorful, “My British Uncle Albert’s Filthy Rich Retirement Secret…”

As with many of the finer teaser from the folks at S&A, this one has a couple levels of complexity to get our juices flowing and build up the eager greedies in our minds.

The first part of the teaser is that whole notion of “Commonwealth Shares,” which they do sort of explain eventually, though I wouldn’t blame you if you chose not to read that far. They say that these British commonwealth shares were created in 1979 by a Thatcher program, and that they were opened up to foreign investors a bit later on, in October of 1986, to the enrichment of many.

They give plenty of examples, as usual, of folks who got rich from this investment — including one Erin Herrara, who reportedly told the Chicago Tribune that “it was so easy” to turn $200 into $5,000 and change.

I’ll buy that, as long as by “easy” they mean “saving for years and years and being patient.”

So these Commonwealth Shares, it becomes clear, are simply shares in companies that were privatized by the British government during the Thatcher reforms of the early 1980s — and, thanks to monopoly positions, government support, and an eager nation of investors, they certainly did very well. These were the old national companies that ran things like the railways, the telephone system, etc., and were gradually sold off to the public to be run, as they generally have been for many more years in the US, as public corporations.

And the stocks of many of these companies did indeed certainly do remarkably well — they give a few examples from the privatization in the UK (45,000% gains from British Gas, 62,714% from British Airways, etc.), and they cite a few reputable sources, though with just snippets of quotes, that back up their claim to some degree … here are a few of those:

“Quick easy money” — The Guardian.

Americans will be “drooling at the prospect” — Forbes


The “potential payoff is so large that it … promises to produce some of the decade’s best investment opportunities” — Fortune

But essentially, the riches from privatization in Britain have already been made — and there are certainly some concerns about the UK economy, seeing as how it relies at the moment on a very familiar foundation for us Americans, easy business and consumer credit and a wildly booming housing market. So they’re not urging us to rush out and buy British Airways or any of the other privatized industries, monopoly or no, in the British Isles.

No, they take it to the next level — and, as we follow the logic, they expand it to the rest of the commonwealth, the greater universe of old British colonies and places that generally followed the British tradition. Places like Canada, Australia, the UAE, Hong Kong, etc. They give some examples of how well this works, too, with the privatization of Cameco and Potash, among others that went public a bit more recently in Canada (and I expect we all know how spectacularly those two companies have done in recent years, with Cameco enjoying the uranium resurgence and Potash riding the agriculture/fertilizer boom).

And they also sneak in a teaser for one of the other privatized Canadian companies that has been around since 1832 and consistenly paid and raised dividends — just to give you a quick freebie, that one has to be Scotiabank.

And then we get to the real tease, the new ideas that we’re being teased with … if we’ll just sign up for a subscription. The newsletter isn’t all that expensive, I think it’s $99, but really, if you just want to know the name of a teased company or two, well, the Gumshoe’s your guy … and I won’t demand your $99. Not right now, at least.

So what are we actually urged to invest in now, to follow the strategy of these “commonwealth shares?”

Well, again that’s a two-parter. First, what’s the country?

They’ve selected a country that they think is the best place to look for “commonwealth share” investments. How do they describe it?

“What makes this place the best? Well, its economy’s growing even faster than China’s… the World Bank ranks this place as the #1 country in the world to do business, even safer and more credible than Britain or Switzerland… and it’s a longtime ally of America…”

And they mention that 1,300 US companies are setting up shop in this country as well, due to its business-friendliness. They even mention one specific one, a biotech company called Codex.

So … I don’t know if they’re trying to be sneaky or just had a typo, but the company is actually called Codexis, they’re based out of California and have a research center that they just opened in ….

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Singapore has actually been ranked as the best place in the world for business for two years running by the World Bank, and some people call it the “Switzerland of Asia”, so they’re on pretty good ground there.

OK, so they believe Singapore is the best place to look for these “Commonwealth Shares.” Personally, I’m kind of with them on this — there are a bunch of Singaporean companies I like quite a bit, and I’ve considered buying the Singapore ETF recently in addition to my holdings in Keppel Corp, a Singapore conglomerate in the shipbuilding, real estate, and oil refining (among other) businesses. Just FYI, Singapore is largely a financial center so the ETF is very heavily weighted in banking.

But Keppel’s not the company they’re teasing here, nor are they pushing the ETF (though I think Robert Hsu has recently been teasing the Singapore ETF or a similar fund — the iShares ETF is EWS, and there’s a closed end Singapore Fund, too, that I’ve never looked at — ticker SGF). And God knows why you’d want to know which Singapore companies I like. No, they’ve got two other companies in mind, one in telecom and one in real estate.

The telecom one is teased thusly,

“a stranglehold on Telecomm throughout ALL of Asia, India, the Philippines, Singapore, Indonesia, and Australia – have been 3-times more profitable than Verizon over the past few years. According to company policy, they must pay out 40-50% of yearly earnings to shareholders as dividends, which they’ve done for 11 consecutive years. Not to mention, 4 enormous special dividends on top of that.”

That pretty nearly has to be Singapore Telecom (SGAPY for the 10:1 ADR on the pink sheets, which actually has pretty good volume), which is the big privatized wireline and wireless telecom company in Singapore — but, before you lose interest (Singapore isn’t itself growing quickly enough, or developing enough, to make their phone company a big grower), note that their international expansion is really the key for this company — they own big pieces of wireless companies in Australia, India, and all the other countries noted above. the Singapore market is growing at probably 1 or 2% a year for them, but the others are growing fast and furious and in some places they’re also taking market share. So that’s fairly appealing.

The dividend for this one is set, as with so many large foreign companies, as a healthy percentage of their income, so while it’s nice it’s not nearly as predictable as US dividends — if you say your dividend is just going to be 40% of earnings, that’s a different promise than the notion that you’ll have a steady dividend that goes up on an even path over time. Using the past 12 months as our guide, their current yield is something like 5 or 6%, but your mileage may vary. And the shares are down a bit from recent highs, so I’m actually a little tempted to dig deeper into this guy — I do like that they have strong pieces of the wireless business in India and Indonesia, two of the more populous developing Asian economies, and they seem to be a decent bet on my first glance. Maybe some more research ahead for me.

And how about the real estate one? Singapore embraced the REIT concept a bit later than the US did, but they did so with some real zeal, so there are quite a few strong REITs in the Singapore market, both domestic and regional operators.

The clues they give for this one are that it is focused on high end and residential real estate, and that it has paid a dividend consistently for 18 years, during which it has boosted the dividend 400%, and operates in some of the hottest countries in the region, including Singapore, China, Hong Kong, Thailand, Vietnam, Philippines, Malaysia, and Indonesia. They’ve also paid “special” dividends for 6 years in a row, generally pretty big ones.

I originally thought this might be Keppel Land, which is partly owned by Keppel Corp and does do luxury housing in all of those countries, but they haven’t paid dividends for quite 18 years or raised them to that extent, and they also operate in India and the Middle East, which would have been worthy of a mention. Nor does it seem to be CapitaLand, the biggest Singapore real estate company, or one of the listed REITs that they run.

And actually, I’ve run out of time so I need to cut it off there. I’ll keep checking up on which of the Singapore real estate companies this might be, or if someone else feels like chipping in on the research feel free to propose your solutions below.

Jim Jubak, who many folks like, has written about Singapore before, too, and generally has favored international investing — his favorite is DBS, a big bank, but he also mentions Singapore Telecom and some others in this recent article that makes a pretty decent case for investing in the country.

This is one place I’d love to visit — one of the smaller countries in the world, now that we’ve gotten a few centuries past the days of the mighty city states, and though it is technically a little island into itself, that’s really just by virtue of a river that separates them from the rest of the Malay Peninsula. So that’s our little geography lesson, Singapore is one of the world centers of shipbuilding and finance, and it has an enviable position on China’s doorstep that it has been profiting nicely from for years … and soon, they’ll have big casinos, too, what more could you want?

Oh, and just to note — the Singaporeans are not necessarily eager to lose control of everything. Companies I own shares in have been burned by the Singapore government on potential takeovers before, including Cemex’s thwarted attempt to buy Semen Gresik, their big cement company, and Seadrill’s possible plan to take over Apexindo, an oil services firm (both have since sold their holdings in those companies). I just realized that I’m a big giant idiot — I’ll leave this paragraph in here so you know what a bonehead I can be at times, but those are both Indonesian companies … they’re not based in Singapore, don’t know why I did that little brain freeze. Sorry.

To make up for that boneheaded paragraph, I’ll also let you know that Singapore is a hot exporter of one of the most talked-about things in the world these days: Sovereign wealth. Temasek is the name of the government’s sovereign wealth investment fund, and it owns chunks of many partially privatized Singaporean companies and is heavily invested in other large companies, particularly in Asia (with a strong recent focus on greater China) but also elsewhere in the world.

So … I left you hanging a little bit with the real estate one … sorry, will try to catch up to that one momentarily. But if you’re looking to investigate the “commonwealth shares” that S&A are teasing right now, Singapore, and especially Singapore Telecom is a place to start your research. Enjoy.

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November 29, 2007 6:11 pm

As a British reader I had wondered about these “Commonwealth Shares” for a while. I bought British Gas on the initial float, and whilst they have been a great investment they haven’t yielded that big a gain – I feel the report writer may have not researched the original float properly, as you paid only 50p up front, with more installments in years to come.
I agree with the sentiments on Singapore, but UK in the 80’s was a very different economy from Singapore in the 2000’s – I wouldn’t imagine any give-aways now

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November 30, 2007 11:04 pm

As a British reader I can tell you that this concept of “Commonwealth Shares” is a completely bogus marketing idea designed to make you pay a subscription fee for the newsletter. It’s just not true.

There was a lot of easy money made on privatisations in the 80’s, but not any more. And certainly not the sort of profits suggested in this newsletter. I

It’s just not smart to invest in a company in an ex British colony in 2007 because 25 years ago some people in Britain made some profit investing in a similar company in the UK. If you’re dumb enough to fall for that, let me know. There’s a bridge over the Thames I’d like to offer you.

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December 18, 2007 4:21 pm

Thank you for straightening out the “Commonwealth Shares” question.

Great job.

March 23, 2008 12:05 am

Great to rely on some reliable journalism.

thank you

Michael Shepherd
April 17, 2008 1:07 am

I am relatively new to Daily Wealth and wanted to get behind the hype.
I am glad I discovered you. Thanks!

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sam jedidiah
sam jedidiah
April 17, 2008 9:37 am

thanks for the tip.i thank god we have someone like you.there all someone in your pocket.

Thomas Wee