The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Arawak Port Development Company’s (APD) preference share issue was 71.4 per cent oversubscribed, Tribune Business was told yesterday, raising $15 million more than target.

Dion Bethell, APD’s chief financial officer, confirmed the $21 million private placement attracted $36 million worth of investor subscriptions prior to its July 5 closure.

“It was oversubscribed by $15 million,” he told this newspaper. “We only went out for $21 million, and the response was $36 million.”

Mr Bethell said APD’s Board of Directors now had to determine what to do with the $15 million oversubscription, and if they would issue more preference shares than initially planned.

The APD private placement memorandum (PPM) stipulates that the preference shares will be allocated on a ‘first come, first served’ basis, meaning that the first $21 million pledged will receive its due allocation.

The document adds, though, that APD’s Board of Directors will determine what happens to any oversubscription proceeds, and if the issue is to be expanded to encompass the extra $15 million.

“It’s still up to the Board of Directors to decide,” Mr Bethell said yesterday. “Hopefully, within the next few days, we should have a better understanding of what they want to do.

“The Private Placement Memorandum speaks to what the Board would want to do in the event of an oversubscription. They would decide how that oversubscription will be applied, so we’re waiting for a direction from them.”

APD’s Board, chaired by James Mosko, is made up of directors who are either representing the Government or the private sector (the 19 shipping industry companies) that led the Nassau Container Port’s development. Both sides each have a 40 per cent equity stake in APD, with the remaining 20 per cent held by Bahamian public investors.

The Board is unlikely to delay its decision much longer, given that subscribers to its preference share issue will want to know if their capital is to be deployed for this purpose.

The decision will also impact how APD structures its plans to fully take-out the $43 million Royal Bank of Canada (RBC) bridge loan facility that financed the Nassau Container Port’s construction.

The $21 million preference share issue was initially intended to provide 50 per cent of the solution, with most of the remainder coming from a new, long-term RBC loan.

The private placement memorandum said the new RBC loan is supposed to be a $20 million facility, but if APD accepts its preference share issue to accept some - or even all - of the extra $15 million, the amount of bank credit it requires will be sharply reduced.

As previously reported by this newspaper, the Nassau Container Port operator’s capital raising has been aided by the low interest rate environment, particularly the minimal investor returns available on bank deposits, and the absence of any alternative or competing fixed income investments.

This climate was further underscored by the Government’s latest $70 million Registered Stock (bond) issue, unveiled yesterday, which is priced just a fraction above the prevailing Prime rate.

Although the 5.5 per cent interest coupon attached to the preference shares was lower than the Bahamian capital markets expected, something acknowledged by APD, this appears to have been offset by the ‘security’ offered by the company’s 20-year monopoly on New Providence port operations and minimum 10 per cent Internal Rate of Return (IRR).

The latter guarantees returns for APD’s ordinary shareholders - the Government, shipping industry and the Bahamian public - who are paid out after the preference shareholders.

APD, meanwhile, is proposing a staggered principal repayment schedule for the preference shares

Between the fifth and 12th anniversaries of the offering’s closing, the BISX-listed company will make $750,000 annually in principal repayments. Between the 13th and 19th anniversaries, the annual principal repayments will increase to $2 million, with the remaining $1 million balance repaid at the 20-year maturity date.

The APD preference shares are likely to be listed on the Bahamas International Securities Exchange (BISX), according to the PPM document.