Many brokers argue that a steady stream of initial public offerings (IPOs) and new listings will be the key to triggering renewed interest in the Trinidad and Tobago Stock Exchange (TTSE) as a source of capital and investment opportunities. Nancy Chen, an investment analyst at West Indies Stock Brokers (WISE), told OBG, “If we were to have some IPOs come to market, that would help mop up some of the excess liquidity that we have. People look to a new investment to see increased yields. There is an appetite for IPOs, and if additional listings were to come, that would spark interest in the capital markets.”
There have been a number of IPOs of government-owned stock in recent years. In July 2013 the government floated 19.3% of the state-owned First Citizens Bank. Although the sale was successful, generating significant profits for investors, there was some controversy concerning claims that retail investors had received too small an allocation of the shares, most of which had gone to institutions, and that there had been conflicts of interest, with a senior manager inappropriately acquiring a large block of shares. This led to an investigation by the T&T Securities and Exchange Commission (TTSEC) and a political controversy, which had the effect of delaying the timing of further planned divestments.
The Phoenix Park IPO
In September 2015 the delayed IPO of 19.1% of the shares in the state-owned Phoenix Park Gas Processors Ltd (PPGPL) went ahead. PPGPL is one of the largest gas-processing plants in the western hemisphere, receiving natural gas from the country’s upstream segment and extracting natural gas liquids (NGLs) which in turn are broken down into propane, butane and natural gasoline and then sold to downstream customers.
The National Gas Company of T&T (NGCTT) ultimately controls PPGPL through two of its subsidiaries, National Gas Company (NGCNGL), with a 51% stake, and holding company T&T NGL (TTNGL), with a 39% stake. A consortium composed of the National Insurance Board of T&T (NIBTT), the T&T Unit Trust Corporation (UTC) and National Enterprises Limited hold the remaining 10% of shares in the company.
The IPO was launched through the sale of a 49% stake in TTNGL, with a total of 75.8m shares offered at a price of TT$20 ($3.08) per share. The offer price anticipated raising TT$1.5bn ($231m), making it the country’s largest IPO to date. The price had been reduced from TT$25 ($3.85) per share planned one year earlier because of the fall in energy prices.
However, the IPO was more than 50% oversubscribed, raising a higher-than-expected TT$2.2bn ($338.8m). Michael Jordan of brokers JMMB Securities told the media take-up had been strong despite worries over gas prices, impaired gas supplies and a challenging political climate, as the IPO closed only days before a general election. Yet he also noted the impact of excess liquidity, saying “There are not a whole lot of alternatives. Investors may have money they want to invest, but not very many options.”
A further downside for this IPO was that while investors in First Citizen Bank were rewarded with an immediate increase in share prices, after a short-lived rally on the markets, the TTNGL stock actually traded down soon after the launch.
Better & Cleaner
This being said, the PPGPL sale was able to avoid some of the controversies encountered in the First Citizens IPO. This was recognised by the Colonial Life Insurance Company (CLICO) Policyholders Group, an activist lobby representing retail savers and investors affected by the 2009 collapse of the CLICO insurance group (see Insurance chapter). Peter Permell, chair of the group, said the latest sale was, “A reversal of that fatally flawed allocation formula used in the First Citizens IPO, where individual investors, including employees of the company, were restricted to 30% of the shares and institutional investors received the lion’s share of 70%”. In contrast, the PPGPL IPO had allocated 60% of shares to individual investors and 40% to institutions, which in Permell’s opinion was a much more acceptable distribution. Another change was that although PPGPL employees were offered an allocation of shares at a 10% discount – TT$18 ($2.77) – they had to accept a three-month blackout period, during which they could not sell or transfer the shares. The aim of this provision was to ban purchase and quick resale operations, which was carried out by a number of the First Citizen insiders, and had been labelled as profiteering by some.
Stallion & Calypso
The PPGPL flotation may have had a crowding out effect on a separate private sector IPO. In July 2015, ahead of the PPGPL float, real estate developer Stallion Property Trust said its TT$382m ($58.8m) proposed IPO, which had been open since May, had fallen short of 100% subscription and therefore would be deemed unsuccessful and closed. The IPO had been designed to reduce the debts of Stallion’s wholly owned subsidiary, Endeavour Holdings. Subhas Ramkhelawan, managing director at Bourse Securities, commented that “The market apparently did not have appetite for this and the reasons may have been various. One may have been that there is a great deal of excitement about the imminent issue of PPGPL and maybe that would have had an impact because of the timing and the conflict of timing for raising funding.” A further IPO did close successfully in December 2015. This was the launch of an exchange-traded fund, the Calypso Macro Index Fund, by the UTC. The UTC is one of the country’s most important providers of savings products, with over 500,000 account holders. It was the first UTC fund ever to be listed on the TTSE. The IPO offered 20.2m units at TT$25 ($3.85) each for a total of TT$505m ($77.8m) and was fully subscribed.
The Calypso Fund is designed to mirror the overall performance of T&T’s economy, with roughly one-third invested in global energy companies and two-thirds in a representative selection of local companies. Around 12% of the units on offer went to retail investors, with the rest being distributed out among pension funds, credit unions, cooperatives, the NIBTT and private companies. Sekou Mark, vice-president for investment research and portfolio management at UTC, told OBG, “For the local equity market, the Calypso Fund represents an opportunity to keep T&T dollars at home and invested in companies that drive our local economy.”
Future IPOs
It appears that there is potential for additional IPOs, although there is a degree of uncertainty over government and private sector plans, and some reluctance to sell at what could be the low point of the asset price cycle. There are suggestions among industry experts that selling a further tranche of shares in First Citizens Bank might be a possibility. Another factor is that more public-asset sales are expected after the issues around the CLICO bankruptcy are fully resolved. The government-approved CLICO Resolution Plan sets out a process for paying off policyholders and creditors through the sale of CLICO’s remaining assets (see Insurance chapter). These include holdings in a number of companies, among them rum and bitters producer Angostura Holdings and downstream processor Methanol Holdings (Trinidad) Ltd (MHTL). In mid-2016 these shareholdings were in the process of being valued, and decisions on the way they would eventually be sold had not been fully finalised.
In its first budget, the new government of Prime Minister Keith Rowley said it would be considering asset sales as part of its attempt to narrow the fiscal deficit. Presenting the budget in October 2015, Colm Imbert, the minister of finance, said up to TT$13.4bn ($2.1bn) would need to be raised through IPOs, divestments and extraordinary dividends.
However, a number of analysts believed it would be very difficult to raise the necessary funds in the time available, and in his April 2016 budget review, Imbert reduced the target by 35% to TT$8.7bn ($1.3bn).On this occasion the minister said the government intended to close the gap between ongoing income and expenditure with some borrowing and extraordinary income, such as proceeds from the sale of assets in CLICO, dividends from NGC, draw-downs from the Heritage and Stabilisation Fund, and the proceeds from the PPGPL IPO.
Some potential IPOs may not happen until after the end of the FY 2015/16 fiscal year, which falls on September 30, 2016. Nevertheless, Peter Clarke, former chairman of the TTSE, has welcomed the government’s intention to sell assets saying he hoped the new government would use the stock exchange to put profitable state-owned companies on the market. “I think the key is to have attractive companies, new companies like PPGPL, that people can participate in and diversify their portfolios with,” Clarke was quoted as saying, adding that the aim was to diversify the market and increase liquidity.
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