The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Arawak Port Development Company’s (APD) planned $21 million preference share issue, set to come to market next week, will have debt servicing costs two percentage points lower than projected.

Tribune Business can confirm that the BISX-listed owner/operator of the Nassau Container Port will be attaching a 5.5 per cent interest coupon to the debt instruments.

APD, in which the Government and shipping industry companies both hold a 40 per cent stake, the Bahamian public holding the remaining 20 per cent, has been able to exploit the banking system’s high liquidity/low interest rate environment to facilitate the re-financing of its existing $43 million Royal Bank of Canada (RBC) bridge loan facility.

Capital markets sources spoken to by Tribune Business revealed that they had expected the $21 million APD private placement to be priced at least one percentage point higher, at 6.5 per cent.

However, this newspaper understands that APD and its advisers expect the preference share issue to be fully subscribed - and possibly as much as two times’ oversubscribed.

As the issue is a private placement, it is not a public offering, so members of the public should not seek to become involved. APD is only targeting it at accredited investors, such as high net worth individuals and institutional investors (insurance companies and pension funds etc).

When contacted by Tribune Business, Dion Bethell, APD’s chief financial officer, confirmed that the preference share issue launch had moved closer, although he declined to specify a date.

“We have become a bit closer to moving with one element of the private placement issue,” he said.

This newspaper understands it could be released as early as Monday or Tuesday next week, but is likely to come out later - possibly Wednesday.

Confirming many of the other details supplied to Tribune Business, Mr Bethell explained that the $21 million preference share issue was just one element in the $43 million bridge facility refinancing.

Indicating that APD had yet to pin down the other elements, he added of the preference share issue: “I can confirm the principal amount is $21 million, with a minimum investment of $50,000 - $500 per share. It’s geared towards accredited institutions.”

Mr Bethell told Tribune Business that the preference shares would have a 5.5 per cent interest rate coupon attached, one of the lowest debt servicing costs ever seen for such an issue in the Bahamian capital markets.

Disclosing that the financing costs were two percentage points lower than the originally anticipated 7.5 per cent, Mr Bethell reiterated that APD had been “seeking to capitalise on opportunities in the market presented by high levels of liquidity and low interest rates”.

The preference shares’ interest coupon is priced just slightly higher than that offered by Bahamas Government Registered Stock, and Mr Bethell conceded: “The term sheet is attractive to APD, while not as attractive as the market anticipated.”

Such sentiment was shared by others. One financial adviser, speaking on condition of anonymity, told Tribune Business: “I think there should have been a premium to that [5.5 per cent].

“It should have been closer to 6.5 per cent at the bottom, 7.25 per cent at the top. In everything there’s some risk, and the risk premium should compensate you for that.”

The APD preference shares have a 20-year maturity, coming due for payout in 2013.

Another financial adviser added: “To be honest with you, the spread off of government debt doesn’t really compensate you. With bank rates so low they can get away with it, but with the returns off of government paper, you’re not being compensated.

“I’m not jumping up and down over it. Your tying up a good piece of my portfolio for 20 years.”

On the 20-year maturity, Mr Bethell told Tribune Business: “We were trying to marry the developments on the long-term financing, aligning them with some key elements in the Memorandum of Understanding [with the Government].

“The MoU spoke to a 20-year exclusivity [in port operations for New Providence]. We felt that would be attractive to investors.”