The Tribune

By NEIL HARTNELL Tribune Business Editor THE next two years will be "a great time" for Bahamas-based companies to seek equity or debt capital, a leading investment banker yesterday urging the $35 million set to be returned from the Arawak Cay Port Development (APD) offering to move quickly if it wanted to find a new home among existing BISX-listed stocks. Michael Anderson, RoyalFidelity Merchant Bank & Trust's president, said the estimated $5-$10 million worth of shares available for trading in the Bahamian capital markets was "a drop in the bucket" compared to the sums set to be returned to retail and institutional investors from the heavily oversubscribed $10 million APD initial public offering (IPO). With the likely returns from alternative fixed income investments, especially bank deposits (CDs), unattractive, Mr Anderson said Bahamian investors - especially those not wishing to wait for the $37 million Bahamas Telecommunications Company (BTC) IPO - would find there was "not a lot available" in existing equities that provided strong dividend and capital appreciation potential. "There's a tremendous amount of capital in the market for new deals," the RoyalFidelity president told Tribune Business. "This APD one, which raised $40 million for a $10 million offering, just shows the equity capacity in the market. If there are companies out there looking for equity, there's a strong demand. "People looking to raise equity or debt capital should be getting prepared. If you're looking for investment monies, it's a great time to be doing it in the next year or two. "This last APD deal shows how much money is sitting around waiting to be put into these deals. Money is now sitting back in retail and institutional hands, looking for improved returns. People realise there's a need for an alternative place to put your money." Apart from the APD IPO, which raised 4.5 times' more than the $10 million sought, Mr Anderson cited last year's $62.5 million Commonwealth Brewery IPO, which raised more than $50 million (the National Insurance Board picked up the $12.5 million balance) as evidence of the strong demand for equities. "Commonwealth Brewery was two times as high as the previous highest IPO amount of $30 million," he added. "At $45 million, even for a small $10 million offering, that [APD] will be the second largest amount raised in an offering ever.... "There's now $35 million put out of APD that needs to find a new home. What are those people interested in equities going to do with that $35 million?" These funds would likely take up virtually the whole BTC IPO, the Government having pledged in this Budget year to sell 9 per cent of its 49 per cent equity holding in the newly-privatised telecommunications carrier to Bahamian retail and institutional investors. Based on the price paid by Cable & Wireless Communications (CWC) for 51 per cent control, this IPO will have a $37 million value. Mr Anderson, though, said many investors awaiting the return of funds earmarked for APD would not want capital sitting around waiting for BTC to come to market. "I would imagine that's a few months away," he said of the BTC IPO, "so some people will say: 'What's on the stock market today that I could use money for without waiting around?'" The Bahamian commercial banking system contained some $897.16 million in excess liquid assets as at end-2011, representing funds that institutions are seeking a home for. Given the absence of a large pool of qualified home buyers/borrowers, those assets will likely be deployed in alternative investments where they can earn a better rate of return. Mr Anderson alluded to this, telling Tribune Business: "I don't think the liquidity in the system will be going any time soon. The banks are sitting on massive excess assets they would like to lend to qualified buyers, but that is not going to happen in the short-term." The huge amount of excess liquidity in the Bahamian banking system, coupled with last year's Prime rate reduction, meant interest returns on bank deposits and CDs had also been declining - increasing the attraction of equities and other fixed income securities. The RoyalFidelity president, though, contrasted the strong Bahamian investor appetite for IPOs with the tepid demand for existing listed stocks, especially good ones that offered better dividend and capital appreciation prospects than the market newcomers. "Even though people come into deals slated as IPOs, they're reluctant to come back into existing equities in the market that have equally good dividend yields and appreciably better capital appreciation prospects," Mr Anderson told Tribune Business. "There's still more sellers out there. I think people need to start getting back into it, looking at what securities they should buy. There are better securities on the market than the new offerings." Noting that the Bahamian capital market "changes on a dime so fast", going rapidly from a seller's market to a buyer's market and vice versa, the RoyalFidelity president warned that if investors - buoyed by the return of their APD funds - returned to existing equities in droves, there was "not a lot available". "There's relatively small amounts. It's tiny. You'll probably find there's less than $50-$10 million only of shares available," Mr Anderson added. "Look at the offering by APD. That raised $45 million. If there's $5-$10 million there, that's a drop in the bucket. There's not lots of good shares left."