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$200m Capital Raising Anticipated For 2015

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A leading investment banker yesterday predicted that “close to $200 million” in new capital raisings will come to market in 2015, with the year set to be “one of the busiest” in recent history.

Michael Anderson, RoyalFidelity Merchant Bank & Trust’s president, told Tribune Business he expected more capital raisings in terms of volume, although the value sought would likely be less per issue than in 2014.

He forecast between four to six capital raisings from the private sector in 2015, averaging between $15-$30 million per issue, as opposed to the smaller number of issues - and greater amounts raised - that the Bahamian capital markets had witnessed in 2014.

“I expect that we’ll see an increase in the number of offerings brought to market next year, particularly in terms of number of offerings, as opposed to the size of offerings,” Mr Anderson told Tribune Business.

“Some of the offerings we see coming will be in the region of $15-$30 million. I expect we’ll see at least five-six new offerings come to market next year, even if the amount is not at the same level as 2014.

“I would expect to see close to $200 million offered next year that we’re aware of, including the Government and private sector.”

Some $125 million worth of the new Bahamas Government Stock (BGS) bonds are set to be issued in three tranches before the June 30 fiscal year-end, while Tribune Business understands there is likely to be a further bond issue by the Public Hospitals Authority (PHA).

Combining these with the anticipated private sector capital raisings outlined by Mr Anderson, it seems possible that 2015 offerings in the Bahamian capital markets could exceed $200 million.

The RoyalFidelity president, meanwhile, told Tribune Business that if the four-six private sector issues he was aware of came to fruition, 2015 would potentially witness the greatest amount of capital markets activity seen in recent years.

“It’s more than double what we did in 2014,” Mr Anderson said. “2015 would be one of the busiest years in terms of raisings that we’ve had for a number of years.”

The past year was dominated by Cable Bahamas’ $114 million preference share issue, which helped to finance its four Florida acquisitions. The other major issue was the first $75 million BGS tranche.

While these two issues dominated the headlines, much more capital will likely have been raised, as numerous private placement involving smaller sums take place every year.

Mr Anderson said the greater capital markets activity would be “driven” by the expected increase in Bahamian economic growth, stemming from the $3.5 billion Baha Mar project’s Spring 2015 opening and the hiring of 4,000-5,000 employees.

“It’s linked to the growth we see coming back into the economy, whether it’s associated with Baha Mar and the employment of a number of people, or businesses forming associated with Baha Mar,” he explained.

“I generally expect to see another growth period for the Bahamas with some of the new developments, including the British Colonial Hilton.

“We seem to be going into a new period of growth for the economy that will foster capital raisings in 2015 and 2016 onwards.”

These assertions are supported by the International Monetary Fund (IMF) and credit rating agencies, Moody’s and Standard & Poor’s (S&P), which are all projecting the Bahamas will enjoy GDP growth of 2 per cent or higher in 2015, Value-Added Tax (VAT) notwithstanding.

The improvement is forecast after three years when the Bahamas’ growth rate has sometimes struggled to break 1 per cent, getting no higher than 1.3 per cent.

Mr Anderson, though, expressed a desire for more equity issues, via initial public offerings (IPOs), to come to market and give Bahamian investors an opportunity to buy into growing companies at the start.

Many BISX-listed stocks were close to being “fully priced” in terms of their earnings growth, he explained, leaving investors with relatively little upside potential.

And most Bahamian capital raisings typically involve debt securities, such as bonds and preference shares, rather than equities that can potentially yield the highest rates of return.

“It would be very good to start to see more equity offerings come back to the market,” Mr Anderson told Tribune Business. “People are looking for equities, but there are very little out there.

“Even though we think growth in the economy will push earnings and prices higher, it would be nice to see more equities, as they give people an opportunity to buy into companies that are not fully priced.”

The RoyalFidelity chief added that the prevailing low interest rate environment, which is expected to persist for several years yet, would further drive Bahamian investors towards the higher rates of return on offer in the capital markets.

“Traditionally, Bahamians have used banks and bank deposits as investment vehicles, and with interest rates and deposit rates dropping to historically low levels, people need to find alternative investments,” Mr Anderson said.

“It’s a good time for people needing to raise their returns to come to market, and invest in higher yielding securities that they may not have done before.

“People can’t afford not to get a certain rate of return in a way. I see more people moving out of the banks to get the returns they need.”

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