By NEIL HARTNELL
Tribune Business Editor
THE Government yesterday unveiled multiple legislative changes to boost minority investor protections and enhance the competitiveness of the Bahamian capital markets.
K P Turnquest told Tribune Business that changes to the Companies Act, Securities Industries Act and draft takeover rules were designed to strengthen safeguards for small Bahamian retail investors and ensure they are “not taken advantage of” by majority/controlling shareholders and aggressive corporate raiders.
“This has become an emerging issue for The Bahamas as we develop and deepen the capital markets,” he said of the need to better protect minority investors.
“It’s one of the points in the [World Bank’s] ease of doing business rankings that we are always criticised for but, more important than that, it is a necessary adjustment to ensure minorities are not taken advantage of.”
With both the Companies Act changes and takeover rules focused on the same broad objective, Mr Turnquest added of the latter: “It’s the same kind of effect to ensure that minorities are not disadvantaged in the future by an aggressive takeover. This doesn’t prevent the takeover; it ensures that all investors are treated fairly and the same.”
The deputy prime minister added that the legal reforms were intended to spur Bahamian capital markets growth by making equity investments more attractive, thereby helping to create and spread wealth among more Bahamians and establish a shareholding society through greater numbers owning part of their own economy.
“As we seek to broaden economic participation this becomes more and more of a significant issue,” Mr Turnquest told Tribune Business, “and if we look at how we’re trying to rebalance and restructure the economy most Bahamians to not have the ability to fund their own enterprises; certainly not large ones.
“But they can do through participation in public companies. As we go forward and continue to modernise our economic infrastructure, this issue becomes more and more important and gives more Bahamians an opportunity to own more of the economy in affordable bites.”
Minority shareholder protection has long been seen as a weak point in Bahamian capital markets regulation, especially when it comes to takeovers of publicly-traded companies - including those listed on the Bahamas International Securities Exchange (BISX).
The issue first reared its head when Colina acquired the listed life and health insurer, Global (Bahamas), and continued with the changes of majority ownership/control at Bahamas Supermarkets (City Markets) and ICD Utilities/Grand Bahama Power Company.
In all three cases majority ownership and control was acquired by an outside entity, leaving minority investors holding shares in companies whose strategic direction and management was in different hands.
This is vastly different from more developed capital markets such as the UK, where the Takeover Panel requires bidders to make an offer to acquire 100 percent of a publicly-traded company’s outstanding shares once they build up an equity interest of more than 29.9 percent.
Colina’s purchase of the majority interest in the former RND Holdings from ex-Cabinet minister Jerome Fitzgerald is the only time when the same price and terms have been offered to Bahamian minority investors to determine whether they, too, wish to exit.
The draft Takeover Rules mandate that all shareholders, including minority investors, be supplied with the same information at the same time by potential acquirers, and that they are to be treated fairly and offered the same price, terms and conditions.
Another significant issue in the Bahamian capital markets is that most BISX-listed companies are controlled by a single majority owner, or group of like-minded investors collectively own most of the shares. This has made it difficult for minorities to intervene and influence how management are running their investments which, in the case of Bank of The Bahamas, were virtually wiped out.
The Companies Act changes, according to the Bill’s “objects and reasons”, are designed “to support the growth of equity markets by providing for the enhanced protection of minority investors primarily as it relates to conflicts of interest, related party transactions, shareholder governance and matters connected thereto. It seeks to bring these aspects of the Companies Act in line with international best practice”.
The Bill requires nominee shareholders to identify the beneficial owners on whose behalf they are holding shares, with the information maintained at the company’s head office. It also requires directors to specify the amount of shares or subscription rights they may grant, and give a timeline for when this expires.
Subsidiary companies are to be banned from holding shares in their parent once the Act passes as a means of enhancing corporate transparency. Such existing arrangements can continue but they will be stripped of their voting rights.
The Bill also aims to prevent insider dealing by directors and senior officers through requiring them to disclose their interest in any transaction or contract with the public company. Failing to do so could result in the court setting aside such deals.