Money Matters: Firstline Securities Blog

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

HISTORY

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…

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…

A Quick Look at Guardian Media Limited

22 June 2015

150622 GML Logo

 

 

 

Who are Guardian Media Limited?

Guardian Media Limited (GML) is a limited liability company formed in 1917 as the Trinidad Publishing Company. In 2010 the company changed its name to Guardian Media Limited.

GML is a public company operating in Trinidad and Tobago, and is a 51% subsidiary of the ANSA McAL Group. The primary activities of GML are the publication of the Guardian and Sunday Guardian Newspapers, the operation of six radio broadcasting stations, and one television station. Read more…

ALIBABA: A Grand Bazaar & a Sweet Dream for the Future

29 September 2014

On the 18th September 2014, the Alibaba Group became the world’s largest IPO, raising in total US$25 billion. With an opening price of US$68 per share, by the end of the first day’s trading the stock had settled at just below US$90 per share.

In comparative terms, Alibaba’s IPO surpassed the 2010 offering from the Agricultural Bank of China on the Hong Kong exchange ($22.1 billion), and is significantly above the previous largest IPO in the United States ($19.7 billion raised by VISA in 2008). With a market capitalisation above $220 billion, the stock market currently values Alibaba above both Facebook and Amazon.

So…what is Alibaba? Where have you been, right?

Read more…

Costa Rica, Falling Angels, and Fair Winds

22 September 2014

Last month, we spoke about the economic data and corporate investment opportunities in Costa Rica. Today we focus once again on that Central American state because on September 16th 2014, Moody’s followed the lead of both Standard & Poor’s and Fitch in downgrading Costa Rica’s government bonds from investment grade to “junk bond” status. Read more…

Phoenix Park: Is The Price Right?

22 July 2014

Welcome to The Price is Right, the Firstline edition! 

The-Price-is-RightNo, we’re not launching a game show (but should we?)

However, we will be analysing the Trinidad & Tobago Natural Gas Liquids Limited / Phoenix Park Gas Processors Limited from a variety of different perspectives, to figure out if this IPO’s price is right.

We don’t yet have full financials for 2013 to make our calculations so in the interim we’ve used the numbers that we do have (up to YE 2012) and have come up with a preliminary assessment of the value being offered, since we already have indications of the price.

Read more…

Caribbean & Central America – NEW ISSUE Update

8 April 2014

The new issue market has proven quite resilient in 2014 thus far. This week we recap some of the new bond issues throughout the region. We often have clients ask; ‘what’s in the pipeline?’ However, with Investment Grade (IG) entities (in the Caribbean especially) slow to bring new paper to market, the focus has been on the more speculative names. Read more…

Why You Yellen?!

19 November 2013

 

Businessinsider.com.au

Businessinsider.com.au

          “I do not see the program as continuing indefinitely,” Yellen said. “We … are attempting to assess whether or not we have seen meaningful progress in the labour market. And what the (Fed’s policy) committee is looking for is signs we will have growth that is strong enough to promote continued progress.”

Yellen said she did not believe that U.S. stocks or the housing market were in bubble territory, and assured the panel that the central bank would focus intently to spot any risky investment behaviour before financial stability was compromised. (Reuters) Read more…

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