The fiscal year 2015/16 may be remembered as a period offering both risk and opportunity to investors in the Trinidad and Tobago stock market. While the effects of lower energy prices on an oil and natural gas driven economy cannot be ignored, it remains to be seen how capital markets in T&T will react.
Trading activity on the Trinidad and Tobago Stock Exchange (TTSE) has been robust, despite an economic slowdown driven by lower energy prices. The value of shares traded in 2015 was, at TT$1.15bn ($177.1m), the highest level recorded in the past five years. As of mid-April 2016, activity for the year seems set to match or exceed activity in 2015. Banking, which accounted for 32.4% of trade value, was the most actively traded sector. This would not have come as a surprise, given that the sector comprises around 45% of the weighting of the Trinidad and Tobago Composite Index (TTCI). The conglomerates sector (16.7% of the TTCI) accounted for just over 17% of all trades by value, while the manufacturing sector (15.7% of the TTCI) contributed approximately 10.6% of traded value.
Debuting in 2015 was Trinidad and Tobago NGL, the latest initial public offering (IPO) to enter the TTSE. NGL was formed as a holding company to allow the public to participate in the economic benefits of T&T’s only natural gas processor, Phoenix Park Gas Processor Limited (PPGPL). The IPO offered public ownership of up to 49% in NGL, which owns a 39% shareholding of PPGPL. Even with lower energy prices, NGL was oversubscribed some 1.5 times, with the first trade taking place on the TTSE in mid-October 2015. In just under three months of trading, NGL (the sole stock in the energy sector) accounted for 25.7% of shares traded in 2015 by value.
As the new reality of lower energy prices sets in, the government has become open to divestment to help raise the requisite funding to meet its expenditure needs. This could present considerable opportunities for portfolio investors to acquire assets at attractive valuations over the next 12 to 24 months. In the 2016 mid-year budget review presented by T&T’s minister of finance, it was noted that divestments from the sale of Colonial Life Insurance Company (CLICO) assets would be put up for sale during the period 2016 to 2017.
Angostura Holdings, with a portfolio that includes international and domestic brands, is one of the Caribbean’s leading rum producers. CLICO owns 32% of the company’s outstanding shares, which amount to $130m. For a strategic buyer in the alcoholic beverages segment, Angostura could represent a very attractive acquisition, if such a substantial block were to be offered. Similar deals have occurred recently, with Gruppo Campari acquiring Lascelles de Mercado (makers of Appleton, and Wray and Nephew Jamaican rums) in 2012, while the most recent acquisition involved the Barbados beverage conglomerate Banks Holdings, successfully targeted by AmBev in 2015.
A significant holding of Republic Financial Holdings Limited (RFHL) shares, also through the sale of CLICO assets, may become available in 2017 as the government continues with its divestment agenda. CLICO directly owns 7.3% of RFHL’s outstanding shares, amounting to $190m as of mid-April 2016.
In addition to those initiatives highlighted in the 2016 mid-year review, other opportunities for investors may arise from state divestments for both new issues and position reductions of currently listed stocks. For example, the government holds a 77% shareholding of First Citizens, one of T&T’s largest commercial banks, leaving the option of a 26% divestment on the table. In terms of new issues, a potential merger between the Home Mortgage Bank and the Trinidad & Tobago Mortgage Finance Company has long been touted, with an eventual IPO on the cards. There is much scope for an increase in trading activity and securities on the TTSE in the short to mid-term.