By NEIL HARTNELL
Tribune Business Editor
A Bahamas-based oil explorer and its advisers yesterday said they plan to seek the Securities Commission's permission to open their newly-launched mutual fund to small local retail investors.
The Bahamas Petroleum Company (BPC) disclosed that its £2m BPC Investment Fund, which began taking subscriptions yesterday, is for the time being only open to sophisticated institutional investors - such as pension funds, insurance companies, investment houses and other money managers - and not individual Bahamian investors.
The oil explorer, which plans to drill its first exploratory well in Bahamian waters during the 2020 first half, said the BPC Investment Fund had been licensed as a locally-domiciled "professional" fund. This type of fund, under Bahamian law, can only be pitched at "sophisticated" and "institutional" investors who are well-versed in the risks, as well as the rewards, of the underlying investments.
However, BPC said Leno Corporate Services, the investment fund's Bahamian adviser and placement agent, planned to apply to the Securities Commission for it to be reclassified as a "standard" fund that can offer shares to the general public and ordinary Bahamian retail investors.
"The fund has initially been licensed as a 'professional' fund such that qualifying professional/institutional investors will be able to subscribe for shares in the fund," BPC said. "However, Leno intends to make application to the Bahamian Securities Commission for reclassification of the fund as a 'standard' fund, which would allow participation in the fund by non-professional retail investors in The Bahamas should such approval be granted.
"The Securities Commission will arrive at a decision on this application in due course, and the company will provide further updates on this process when appropriate."
Many Bahamian retail investors are likely to be angered at the BPC Investment Fund only being opened to investments made by large institutions, with the perception being that the "small man" is once again being denied the opportunity to make a wealth-creating investment that could drastically improve their economic well-being.
However, others will argue that the fund's status as a "professional" fund is entirely appropriate as the investment opportunity is only suitable for sophisticated investors able to both understand its high reward/high risk potential and absorb any subsequent losses.
For BPC is effectively a start-up, yet to drill its first well and with a history of financial losses. And, for all its research to "de-risk" the project, there is no 100 percent certainty that commercial quantities of recoverable oil lie below The Bahamas' sea bed.
As a result, many capital markets observers will likely view the BPC Investment Fund offering as more a venture capital/private equity investment play rather than an opportunity for small retail investors who can ill-afford any major loss.
Still, it represents an opportunity for institutions who manage funds belonging to thousands of Bahamians to benefit from the potential upside of investing in the lucrative oil industry, even though the BPC Investment Fund's stake in the exploration outfit will be just 4.47 percent if the £2m offering is full subscribed.
The issue, priced at two UK pence (2p) per share, is offering the same price as that extended to BPC's international investors in recent capital raisings. Some 100m shares are on offer, with the minimum investment set at $10,000.
Simon Potter, BPC's chief executive, said in a statement: "It has long been the company's intention to provide Bahamians a means of investing directly in this nationally significant project.
"Whilst the royalty regime under which BPC operates ensures economic value for the people of The Bahamas via government revenues, the mutual fund initiative will allow Bahamian individuals to hold a stake in the outcome of this exciting and potentially transformational project, and thus to personally benefit should the project be successful."
Mr Potter, in a previous interview with Tribune Business, explained that the mutual fund's role was not to raise cash for BPC as the first $25m well project is already fully-funded. Instead, it was to facilitate Bahamian investment in the company and enable locals to participate in any wealth creation upside from the company's exploration activities
The BPC Investment Fund's initial offering period will close on February 7, 2020, with the proceeds used solely to acquire ordinary shares in its sponsor, BPC. Investors will be able to purchase and redeem shares on a monthly basis, "or more frequently if felt appropriate by the Fund", with any extra net subscription proceeds employed to purchase more BPC stock.
These shares will either be issued directly as new shares by BPC, or acquired on the London Stock Exchange's Alternative Investment Market (AIM) market of the London Stock Exchange ("AIM").
"The company has agreed to fund the set-up costs and first year of the fund's operating expenses up to a maximum of $50,000 as an additional expression of support for the fund's objective, being to provide a mechanism whereby Bahamian investors are able to invest in the company and thereby have an interest in the outcome of the planned upcoming exploration well," BPC added.
The BPC Investment Fund Board is comprised of two Bahamians, Sean Longley and Brian Jones, both Leno principals. Leno is both the investment manager and fund administrator, with its newly-created trust arm serving as custodian. The auditors are HLB Galanis & Company.