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Gb Power Offering 35% Oversubscribed

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Grand Bahama Power Company (GBPC) yesterday announced that its $32 million preference share issue had closed a week earlier than planned, after it was oversubscribed by more than 35 per cent.

A week after Tribune Business exclusively revealed that the utility monopoly’s private placement was set to be oversubscribed, a release from its placement agents, CFAL and CIBC FirstCaribbean, indicated that around $43.2 million was raised from investors - some $11.2 million over the target amount.

As a result, the Grand Bahama Power preference share offering, which offered 32,000 shares priced at $1,000 each, closed on Friday, January 11, as opposed to the initial target date of this Friday.

Investors who subscribed will now turn their attention to how the shares will be allocated, and whether they receive their full subscriptions. According to the private placement memorandum, the shares were to be allocated on a ‘first come, first served’ basis, and Tribune Business was hearing last week that some institutional investors were complaining about not receiving their subscribed-for allocation.

Capital markets analysts had expected the GB Power offering to be oversubscribed, based on its attractive interest coupon of 7.25 per cent for the first four years, and pent-up demand for higher returns caused by an absence of offerings in recent times.

Grand Bahama Power Company (GBPC) is projecting that its net income will “improve significantly” by 42.1 per cent this year, rising to $12.331 million on the back of cost efficiencies and its ‘return-based’ tariff structure.

The forecast, which shows Grand Bahama’s monopoly power provider generating an estimated $8.676 million net income after tax (NIAT) for 2012, was contained in the offering document for the $32 million preference share offering.

The $30.875 million net proceeds from the offering, which is private, meaning it is being targeted at specific high net worth and institutional investors, and that ordinary Bahamian investors should not apply, will be used to repay loans made to GBPC by its immediate parent, Emera Caribbean.

These loans financed the construction of GBPC’s new $72 million West Sunrise Plant, and the preference share offering is intended to alter the company’s debt-to-equity capital structure from one that its 76:24 weighted in favour of debt to just 60:40.

With the West Sunrise plant expected to generate increased operational efficiencies/cost savings, and the new rate structure allowing for a 10 per cent return on the base tariff, GBPC is projecting that its net profit margin will increase from 7 per cent in 2012 to 10.5 per cent this current financial year.

And, providing some New Year cheer for its ordinary shareholders, GBPC said it expects to be in position to resume dividend payments in 2013.

“Improved operating efficiencies generated from the new plant are yielding significant savings versus prior years, resulting in increased profitability,” GBPC said in the offering document.

“Fuel costs and their correspondent fuel revenues are predicted to fall from $64.1 million in 2011 to $48.9 million in 2013, (a drop of 23.3 per cent), resulting in declining top-line revenue and combined strong growth in gross and operating profits.”

It added: “GBPC’s net profit margins were 7.8 per cent in financial year 2008, and fell drastically to financial year 2010’s low of -1.9 per cent.

“As of financial year 2012, margins are projected to increase to 7 per cent and to further improve to 10.5 per cent in financial year 2013 in the first full year of operating under the new rate structure.”

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