Money Matters: Firstline Securities Blog

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…


20 August 2015

Who are TTNGL?

Trinidad and Tobago NGL Limited (TTNGL) was incorporated in the Republic of Trinidad and Tobago on the 13th September 2013 and acts as an investment holding company following its acquisition of 39% of the share capital of Phoenix Park Gas Processors Limited (PPGPL) in the form of class B shares.
The PPGPL shares that were acquired by TTNGL were previously held by Trinidad and Tobago Holdings LLC, the sole shareholder of which was the National Gas Company of Trinidad and Tobago Limited (NGC).
TTNGL is currently a wholly owned subsidiary of NGC which is itself owned by the Government of the Republic of Trinidad and Tobago (GORTT).
Pursuant to a mandate issued by GORTT, NGC is on the verge of offering 49% of its total 39% ownership in PPGPL to investors in Trinidad and Tobago through a public offering of class B shares in TTNGL.
As at 31st December 2014 TTNGL’s investment in PPGPL represented 93% of the total net assets of TTNGL.
TTNGL prepare its accounts annually expressed in Trinidad and Tobago dollars.

Who are PPGPL?

PPGPL was incorporated in the Republic of Trinidad and Tobago in May 1989 and operates one of the largest gas processing facilities in the Americas.
From its plant located in the heart of Trinidad and Tobago’s petrochemical sector at Point Lisas PPGPL provides clean  natural gas of a high quality to its customers by processing wet natural gas.
Processing involves the extraction of natural gas liquids (NGL’s). Processed natural gas is delivered by PPGPL’s customers to downstream facilities that use it as a feedstock.
PPGPL  fractionates the extracted NGL’s into propane, butane, and natural gasoline. Both the propane and the butane are marketed in the Caribbean and Central America principally via Trafigura, and the natural gasoline is marketed internationally via Glencore.
PPGPL prepare its accounts annually expressed in United States dollars.

How TTNGL accounts for its investment in PPGPL

TTNGL has a 39% investment in PPGPL and accounts for this investment as a joint venture.
Effectively a joint venture is a joint arrangement whereby the parties involved in the venture have rights to the net assets of the joint arrangement depending upon the size of their shareholding relative to the total share capital issued and the size of the other shareholdings within the venture.
Since TTNGL does not exercise control over PPGPL (a shareholding of greater than 50% would be required to achieve control) TTNGL accounts for its investment in PPGPL using the equity method of accounting.

What is the equity method of accounting?

Under the equity method TTNGL begins as a baseline with the cost of its original investment in the PPGPL. Then in subsequent accounting periods TTNGL will recognise its share of the earnings or losses of PPGPL.
TTNGL recognises its share of PPGPL’s profits or losses as an adjustment to the value of its original investment as recorded on its balance sheet, and also in the in its income and expenditure account.
The share of the PPGPL’s earnings that TTNGL recognises is calculated based on TTNGL’s ownership percentage (39%) of the PPGPL’s ordinary shares.
When TTNGL calculates its share of the PPGPL’s earnings it has to take account of the dividends that it has already received from PPGPL. The dividends received are deducted from the carrying amount of TTNGL’s investment in PPGPL as recorded in the accounts of TTNGL.
The value of the investment in PPGPL recorded in the balance sheet of TTNGL has to be tested annually for impairment. Read more…


17 August 2015

In the week since the prospectus for TTNGL has been released, there has been intense discussion regarding the initial public offering, ranging from valuation concerns to questions about revenue and profitability, among others.

All of these concerns and questions are valid, and must be carefully considered by investors before arriving at an investment decision.

Firstline made a recommendation that TTNGL is an appealing investment for investors with capital allocated to take on additional moderate (and by extension, higher) risk, and who are prepared to weather some short term volatility and temporary downside in exchange for attractive dividends relative to other available options.

Therefore, if you have set aside $100 to invest in PPGPL under the assumption that it is a “safe” investment inoculated from global commodities prices fluctuations, then it may well be time to revisit the amount of money you initially planned to allocate and invest. The new amount might be $20 or $ 50 as opposed to $100. In other words:  the amount you allocate directly correlates with your risk tolerance, time horizon, existing portfolio composition and exposure, and ability to absorb any short term volatility.

Additionally, we are unlikely to see the immediate sharp pop up in values that we saw with FIRST. Nevertheless, this does not take away from some of the positives of TTNGL, which must also be considered along with the risks.

Profitability Outlook

MB Average 2014 and 2015 prices

Like most other energy related commodities, LPG (propane and butane) and gasoline have taken a beating in 2014 and 2015.
At Firstline we were only able to obtain market prices for PPGPL’s commodities from late February 2014 through August 14th 2015. Based on the average 2014 prices from the dataset, and the average 2015 prices year to date, there have been declines of between 42% and 52% in the prices of PPGPL commodities. Read more…


11 August 2015

Last June, based on publicly available information, we conducted a basic analysis and valuation of Phoenix Park Gas Processors Limited (“PPGPL”), which was slated to offer shares to the public later in the year. Over a year later, the initial public offering is officially underway as of 11:00 a.m. today, August 10th, 2015.

Now that we have a prospectus and financials in hand, we can conduct a quick but informed valuation of Trinidad and Tobago NGL Ltd (“TTNGL”), the vehicle which is being listed on the TTSE.

The phrase “What a difference a year makes” has never been more appropriate. In the interceding period, West Texas Intermediate crude oil prices have collapsed from over USD 100 per barrel, to USD 43.75 per barrel (as of August 7th, 2015). The same has largely held true for propane, butane and natural gasoline, which are the three commodities that PPGPL produces using natural gas as its feedstock. But what impact has it had on PPGPL? How much does it actually decrease the attractiveness or increase the risk of the investment in TTNGL? In short, what difference does a year make?

Read more…

Baha Mar, a crusade and a dream, or just another nightmare in paradise?

3 August 2015

Baha Mar Logo

What is Baha Mar?

Baha Mar is a resort currently under construction on the island of New Providence in the Bahamas. Planned amenities at the resort include four hotels; the Baha Mar Casino and Hotel, the Grand Hyatt at Baha Mar, the SLS Lux, and the Rosewood at Baha Mar.

Overall the resort when completed will contain 2,200 rooms, 284 private residences, a 100,000 square-foot casino, a 30,000 square-foot spa, over 30 food and beverage options, luxury shopping, art galleries, and studios, a waterpark, and the TPC at Baha Mar golf course designed by golfing legend Jack Nicklaus.

The resort is owned by Baha Mar Resorts Limited and is managed by Chairman and Chief Executive Officer (CEO) Sarkis Izmirlian. The Izmirlian family as discussed below are significant investors in the project.

Read more…

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