Money Matters: Firstline Securities Blog

Money Laundering and Anti Money Laundering 101

17 November 2015

What exactly is Money Laundering – time to add some Breeze?

Look for a simple definition of money laundering in a textbook on Financial Impropriety (I searched on Amazon and surprisingly no one has written such a textbook yet) and you would almost certainly come up with something along the following lines:

“Money laundering is the process by which the illegal nature of criminal proceeds is concealed or disguised in order to make it appear as if the proceeds had been derived from a legitimate source.”

Money laundering can therefore encompass a wide range of situations rising from involvement with the proceeds of any criminal activity through to the extreme of processes designed to obscure the original provenance of funds used to finance terrorist activities.

Somewhere captured within the spectrum of this definition would be concealing bribes and other inducements. In other words – Politicians and Business Executives are often also guilty of laundering money – in an effort to hide their ill-gotten financial gains.

In short, money laundering isn’t just a phenomenon linked purely to drug trafficking. It happens across the world in both developed and under-developed economies. It is therefore endemic.

Money laundering is very much also a “White-Collar” and an “Ordinary Man” problem. Obviously this has serious implications if you are a financial institution (like a credit union or a bank), but it has implications for other businesses too.

Imagine if someone walked into a new car dealer and tried to buy a car with a suitcase full of cash. Should the dealer’s suspicions be raised or should he take the cash and run literally straight to the bank? This scenario may seem fanciful but it does happen! Read more…

A Business Reminder: Actively Manage Your Risk

12 November 2015

Yeah, yeah, yeah, you say. Firstline, tell me something I don’t know!

Ok, grasshoppers. Let’s set the scene with a story first…

About BP

Tony Hayward had experienced a long and successful career at BP. His rise up the ranks was nothing short of meteoric. In September 2000, he was appointed BP’s group treasurer and his responsibilities included global treasury operations, foreign exchange dealing, corporate finance, project finance, and mergers and acquisitions. Hayward became an Executive Vice-President in April 2002, and Chief Executive of Exploration and Production in January 2003.

Looking at this from a slightly different angle and focusing on his early career highlights, we can surmise that Tony Hayward knew all about the concept of risk.

Therefore, in 2007 when BP appointed Tony Hayward as their Chief Executive Officer, it is not surprising to note that he made safety his top priority. Accordingly, he instituted a wide range of requirements, even including that all employees use lids on coffee cups while walking, and refrain from texting while driving. These rules were applicable worldwide to all companies under the BP group umbrella.

All the rules Tony Hayward instituted were sensible ones really.

Three years later on the 20th April 2010, the Deepwater Horizon Oil rig exploded in the Gulf of Mexico causing one of the worst man-made disasters in history. Boom! Read more…

Investment Risk – It’s What Makes the World Go Around…

5 October 2015

What’s the standard definition of investment risk?

Look for a standard definition of investment risk and you may find a definition that reads something like this:

“Investment risk is the chance that an investment‘s actual return will be different from that which was expected (broadly referred to as volatility of the investment). It also includes the possibility of losing at least part, and in some severe cases, all of the investor’s original capital sum. “

More often than not this textbook definition of “investment risk” is usually measured by calculating the standard deviation of the historical returns or average returns of a specific investment (measured against the market as a whole).

Making very complex maths simple, a high standard deviation indicates a high degree of risk. Applying the text book definition the comparative volatility of an investment is a large part of what investment risk is.

What is investment risk really?

Focusing on the volatility of an investment by measuring its standard deviation (or Beta) against the market perhaps clouds the issue of what investment risk really is.

Sometimes it is better to keep things simple. Read more…

Thought of the Day

28 September 2015

It seems as though the Fed is lining up those ducks in order to raise those rates by year end. Federal Reserve Chair Janet Yellen said she is ready to raise interest rates this year and intends to let the labour market run hot for a time to heal the lingering scars of the worst recession since the Great Depression.

                                                                                                                                  unnamed (1)                  

“Most of my colleagues and I anticipate that it will likely be appropriate to raise the target range for the federal funds rate sometime later this year,”  said madam chair as she delivered a speech last evening  in Amherst, Massachusetts.

So, when the FED raises those rates, what is going to happen? Will the bull market stumble, bond yields climb across the curve or merely flatten, and will the economy slide into a recession? It has been 74 months and counting whereas the competing record stands at 35 months.

Are we really ready for this hike? If not how do you ready yourself for a much anticipated move like this?

For bonds what I can say is that it has been pretty volatile as the market looks forward to the rate hike and looking very similar to what you see happening with equities.

The major difference is that the impact of the hike may happen faster in bonds than stocks when the Fed changes course in policy. Interestingly, in office talk our portfolio manager Osmond here at FSL thinks that markets have already adapted to Fed policy expectations and as such any hike is already priced in.

Is the World Economy Anywhere Near a Meaningful Recovery?

8 September 2015

Is the world economy stuck in first gear?

In the most recent assessment of the prospects for the world economy Moody’s predicts the world is on course for muted growth for the remainder of 2015 and 2016.

Looking purely at the numbers, Moody’s forecasts that GDP growth for the G20 block will slow to around 2.7% in 2015 (less than the 2.9% achieved in 2014), and will only moderately increase to 3% in 2016.

Effectively it appears that the world economy cannot get out of first gear.

What should we expect in terms of oil prices?

On the back of recent events Moody’s has revised downwards its estimation of oil prices following sharp falls in recent months and continued evidence that supply continues to outpace demand.

oil price fall







Accordingly Moody’s expects Brent crude to average $57 a barrel in 2016 which is slightly higher than the average for 2015 (at the time of writing of this entry that average for 2015 stood at $55 a barrel).

Comparing current trends with the position last summer, the price of Brent Crude has fallen by more than 50% from its peak price of $115 per barrel last summer.

That’s great news for economies that depend on oil imports but not particularly good news for oil producers like Trinidad and Tobago. Read more…

TTNGL: Is It A Fair Deal?

28 August 2015

150828 TTNGL Valuation - Logo







Note to reader: Throughout this analysis, you can click on the images to enlarge them.

Trinidad and Tobago NGL Limited (TTNGL) was incorporated on September 13, 2013. At present TTNGL is wholly owned by the National Gas Company of Trinidad & Tobago Limited (NGC).

TTNGL’s primary purpose is to hold NGC’s 39% shareholding in Phoenix Park Gas Processors Limited (PPGPL) acquired from ConocoPhillips T&T Holdings Inc in August 2013. As per the Government of the Republic of Trinidad & Tobago (GORTT) mandate to expand public investment opportunities via the stock exchange NGC is proposing an Initial Public Offering (IPO) for 49% of the company’s share capital.

Securities being offered

NGC is offering 75,852,000 Class B shares in TTNGL to the public at a price of TT$20.00 per share. In total TTNGL has in issue 38,700,000 Class A shares and 116,100,000 Class B shares. The Class A and B shares are subject to the same rights, privileges, restrictions, and conditions except for the right to appoint the Company’s Directors.

Post IPO the ownership structure of TTNGL and the underlying asset PPGPL would show as per figure 1:-

Figure 1 – Ownership Structure of TTNGL & PPGPL Post IPO

150828 TTNGL Valuation Discussion Figure 1






As seen above the driver of TTNGL’s value is its investment in PPGPL.

PPGPL Analysis

PPGPL’s core business consists of natural gas processing and exporting natural gas liquids (NGLs). It is the largest producer and marketer of propane, mixed butane, isobutene and natural gasoline in T&T. PPGPL’s three (3) major revenue streams include:-

  1. The processing of wet gas supplied by NGC and Petrotrin
  2. The fractionation of NGLs purchased from Atlantic LNG (ALNG)
  3. The provision of processing capacity to ALNG and Petrotrin

Effectively PPGPL is owned by four (4) state entities as shown in Table 1 below:-

Table 1 – PPGPL Share Ownership Structure

150828 TTNGL Valuation Discussion Table 1




Key PPGPL Risk Factors Read more…

BAHA MAR: The Saga Continues

28 August 2015

150828 Baha Mar Update - Image D


In Mike D’s report earlier report on the Baha Mar project in Bahamas (click here to view), he ended by stating that Baha Mar Limited (BML), developers of the US$3.5B resort, filed for Chapter 11 bankruptcy protection in Delaware, USA on June 29, 2015 claiming US$2.7B in debt.

BML’s goal was to give the company time to reorganize its capital structure as it is estimated that an additional US$400MM is required to complete the project which is 97% complete.

It also filed a lawsuit in the U.K. against China State Construction Engineering Corporation Limited (CSCEC) claiming breach of contract resulting in damages for delays in opening the resort and poor workmanship.

The four (4) main players at Baha Mar are:

  1. Baha Mar Limited (BML) which is owned by the Izmirlian family with a US$900MM equity investment in the project
  2. China Export-Import Bank with a US$2.45B loan in the project
  3. China Construction America (CCA), wholly-owned subsidiary of state-owned China State Construction Engineering Corporation Limited (CSCEC), a publicly-traded company on the Shanghai Stock Exchange with a minor equity (preferred shares) investment of US$150MM in the project and;
  4. The Government of Bahamas which is eager to have the resort open as it will provide 5,000 new jobs in an economy with a 15% unemployment rate and will provide a projected 12% boost to Bahamas GDP.

Read more…

TTNGL DIVIDENDS: Now you see them, then you…won’t?

27 August 2015

I want to tell you a story…

On the 24th March 2014 a small recently formed company with big aspirations made an investment in a gas processing plant located in the Republic of Trinidad and Tobago.

The company – Trinidad and Tobago NGL Limited (TTNGL) – through a complex transaction beyond the scope of this blog entry acquired a 39% ownership interest in the shares of Phoenix Park Gas Processors Limited (PPGPL) for $3,870,000 (all figures in this blog entry are rounded to the nearest thousand Trinidad and Tobago dollars).

TTNGL recorded the investment in PPGPL in its balance sheet at a value of $3,870,000 treating it as a joint venture.

Everything seemed to be going well…or was it?

Things can get a little technical – try not to lose the plot!

This is a complex story, and to understand it fully you have to have a basic understanding of how joint ventures are accounted for in accordance with International Financial Reporting Standards (IFRS and sometimes also referred to as IAS). It also helps if you have some understanding of Trinidad and Tobago’s Companies Act.

Don’t worry. As we go through the story we will try to explain what you need to know.

How TTNGL accounts for dividend income from PPGPL

Anyone who makes an investment (or at least a good investment) expects something in return. For TTNGL that return (hopefully) comes in the form of regular dividends paid by PPGPL.

For the purposes of our story let us assume that TTNGL’s share of PPGPL’s dividend for the year ended 31st December 2014 was $336,191.

When PPGPL declares a dividend TTNGL reflects that dividend in its accounts through the following double entry:

Debit:     Dividend receivable 336,191 (creates debtor in balance sheet)

Credit:   Investment in joint venture 336,191 (dividend deducted from cost of original investment in balance sheet)

Both of these entries are recorded in the balance sheet of TTNGL.

When PPGPL pays a dividend then TTNGL has to reflect the receipt of the cash in its accounts through the following double entry:

Debit:   Cash 336,191 (recording receipt of cash to the bank account)

Credit: Dividend receivable 336,191 (cancelling the debtor in the balance sheet)

Both of these entries are also in the balance sheet. In other words we have not accounted for any of the dividend income in the profit and loss of TTNGL.

So far so good? Are you keeping up? Read more…

The New Sagi

26 August 2015

150826 Sagicor

So, in all the quiet summer LatAm market space,  Sagicor Finance (2015) Limited, a member of the Sagicor Group, successfully issued a new seven-year bond on August 11, 2015 in order to refinance debt, including the US$150 million 10 year bond due in 2016.

The call on the 2016s were announced on 11th August and are effective come 10th September 2015.

The new US$320 million bond matures in 2022, and comes with an 8.875% fixed rate of interest for the period with interest payable semi-annually.

Read more…

Puerto Rico: The Greece of the Caribbean?

24 August 2015

Since 2013, Alejandro Garcia Padilla, Governor of Puerto Rico, has been warning creditors that the United States of America Commonwealth territory’s debt load of US$72B is unbearable and needs to be restructured.  Well, on August 3, 2015, Puerto Rico defaulted on US$58MM in payments due on about 20 moral-obligation bond issues (it did pay US$628,000 on the interest).  It is the first time this has occurred since the island came under the jurisdiction of the USA 117 years ago.

How did this happen – Similarities and Differences with Greece

When Puerto Rico became part of the USA in 1898, its economy was fueled by coffee and sugar.  As agriculture declined, the US Congress approved financial tax incentives for manufacturers but those were phased out by 2006 (and the economy has been shrinking ever since).  Tourism played a major role in revenue generation but after the 2008 Global Financial Crisis, Puerto Rico, like most Caribbean nations that depend on tourism for economic growth, went into a steep economic decline.

However, Government spending to fund over-generous public payrolls continued unabated with budget deficits being financed with borrowings at cheap rates due to the fact that interest payments on Puerto Rico bonds are tax-exempt to US Mainland investors.  This attracted the big mutual funds like Oppenheimer and Franklin Templeton especially since the bonds were first given investment grades (but are now in deep junk territory).  The end result is that Puerto Rico’s debt tripled in the last 15 years. This is very similar to what occurred in Greece (deficit financing, cheap borrowing rates) except that Greek investors/lenders assumed the EU would back the debt.

Two big differences with Greece however, are that

  1. Puerto Rico debt ended up in the hands of Main Street USA via their mutual funds’ investments while Greek debt largely ended up in the hands of other European Sovereign Governments and Banks and
  2. Puerto Rico cannot exit the USA as a territory on its own volition, and like all other US States, cannot declare bankruptcy under Federal Law or repudiate its debts and devalue its currency like Greece can.

Read more…

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