Trinidad and Tobago pushes ahead with record IPO

The government of Trinidad and Tobago launched the country’s largest-ever initial public offering (IPO) on August 10, floating 75.8m shares of Phoenix Park Gas Processors Ltd (PPGPL), one of the country’s major natural gas processing companies.

On offer for TT$20 ($3.16) per share, the PPGPL listing stands to raise TT$1.5bn ($237.4m) if fully subscribed.

Majority-owned by the National Gas Company (NGC), which currently holds a 90% equity interest, PPGPL shares will be sold through NGC subsidiary T&T National Gas, with the sale window scheduled to close on September 9, just days after the country holds general elections.

Powerhouse

One of the largest facilities of its kind in Latin America and the Caribbean, PPGPL processes and refines raw natural gas and natural gas liquids (NGL), supplying roughly 45% of the Caribbean market for propane and butane, and distributing the bulk of its natural gasoline to Colombia.

Despite a dip in profits over the past three years, in line with the fall in NGL prices, PPGPL is seen by many as an attractive investment prospect, thanks to its indexed feedstock and product prices, limited foreign exchange risk and investment-grade “A-” credit rating with a stable outlook from Standard & Poor’s.

Although NGL production has also fallen in recent years – with maintenance operations on BP and BG’s respective Cassia B and Dolphin facilities triggering a 4% contraction in the energy sector in 2013 – PPGPL has continued to generate some of the largest after-tax profit margins in T&T, averaging 24-27% over the past five years, according to local press reports.

Production could see a boost in the coming years, however, as BP’s Juniper offshore gas project comes on-line in 2017, with anticipated production of 590m cu feet per day of natural gas – equivalent to 14.5% of the country’s output last year, local media reported.

Second time’s the charm

The PPGPL listing marks the second time the state has attempted to divest the company. The initial IPO, launched in July of last year for TT$25 ($3.96) per share, was halted after allegations of insider trading and mismanagement of the First Citizens Bank IPO from September 2013 surfaced. The share price has since been revised downward due to the fall in NGL prices.

While some have argued that the sale should have waited until the T&T Securities and Exchange Commission investigation into the First Citizens sale was concluded, the government is confident that the appropriate safeguards have been put in place. In addition to the sale being advised by audit and accountancy Deloitte, Larry Howai, minister of finance, told local press in late July there would be a 5000-share initial purchase limit for PPGPL employees.

Revenue allocation

Speaking to local press in January, Prime Minister Kamla Persad-Bissessar said the IPO was an example of the alternative revenue streams being pursued by the government in response to the downturn in the oil and gas sector.

“The resources raised in the IPO will flow into the consolidated account,” Howai told local media in early August. “The matter of its usage will be determined in the next budget, but such resources are used to retire debt.”

Given the September 30 deadline for passing a national budget, the government elected on September 7 will have less than three weeks to draw up a spending plan for the 2016 fiscal year, including the allocation of some of the IPO funds raised. However, the TT$1.5bn ($237.4m) expected to be generated by the PPGPL sale still falls below the TT$7.5bn ($1.2bn) revenue shortfall forecast for this year, according to local media.

Howai said the IPO was also driven by government policy aimed at extending ownership of the country’s energy sector to the wider public, ensuring a regular flow of dividends and encouraging investment.

The small twin-island nation has traditionally had a culture of savings rather than investment, with less than 20,000 active brokerage accounts in a country of 1.34m, Sarodh Ramkhelawan, manager of investments at Bourse Securities, told OBG earlier this year.

With very few non-banking IPOs over the past decade, the government will be looking to the success of the PPGPL sale to help popularise share ownership, while also contributing to deepening T&T’s capital markets in the longer term.

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