In Trinidad: The Budget & Investors

17 October 2011


Examining the IPOs of companies discussed during Budget 2011/12. First Citizens Bank would be within the top 6 companies listed on the TTSE (measured my market capitalisation).

The Budget presented to Parliament by the Minister of Finance included a number of potential activities seeking to enhance the local stock market. In his speech, the Minister of Finance outlined that the Government will issue initial public offerings (IPO) of shares in

(1) First Citizens Bank Limited

(2) Trinidad and Tobago Mortgage Bank – which is an amalgamation of Trinidad and Tobago Mortgage Finance Company and Home Mortgage Bank.

(3) Clico Trust Fund which will be comprised of RBL shares

In addition the Government will offer additional shares

(1) Point Lisas Industrial Port Development Corporation Limited.

Furthermore, the Government proposes to introduce a third tier on the TTSE which would provide incentives and access to the Capital markets for Small and Medium Enterprises (SME). This would be similar to the Junior Market on the Jamaican Stock Exchange.

Mention was also made with regards to the development of a Regional Stock Market.

Initial Public Offerings and Listing of Shares

The potential listing of shares in First Citizens Bank Limited and the Trinidad and Tobago Mortgage Bank would give investors the opportunity to participate in these two new entities. These listings would also increase the market capitalisation. When listed, the new entities should add approximately $11.8B to the existing market capitalization of $92.6B.

First Citizens Bank Limited is a subsidiary of First Citizens Holdings Limited, a company that is 100 per cent owned by the Government of Trinidad and Tobago. If listed, First Citizens Bank Limited would be the third locally listed bank on the local exchange bringing the total to six banks on the TTSE. According to the Minister of Finance, the divestment of First Citizens Bank Limited through an IPO “will assist the bank in widening its Capital Base and so facilitate its expansion programme in which the Bank is currently engaged.”

The Group, similar to other local banks has delivered growth over the years. Throughout the period FY 2006 to FY 2010, First Citizens reported improved estimated earnings growth as reflected in the Exhibit 1 below, with an average annual increase of approximately 17.3 per cent.

At the end of the six months (March 31, 2011), the Group’s Total Assets was $30.5B, while Shareholders’ equity was $4.8B.

Based on the most recent earnings generated and using market valuations of similar local banks the potential market capitalization is approximately $9.4B. This means that First Citizens weighting in the market could be in the range of 8 per cent- 9 per cent. As such, First Citizens would be one of the top six companies on the TTSE by market capitalisation.

Similar to First Citizens, the listing of Trinidad and Tobago Mortgage Bank should contribute a market capitalisation of approximately $2.4B and account for approximately 2.3 per cent of the market. This calculation was based using a market to book average of 2.5 times of the locally listed banks and the shareholders equity of the amalgamated entities.

This proposed merger of Trinidad and Tobago Mortgage Finance Company (TTMF) and Home Mortgage Bank (HMB) will have a combined asset base of approximately $5.0B. At the end of FY 2010 TTMF assets total $3.2B, while HMB asset base was valued at $1.8B. Shareholders’ Equity in FY 2010 for TTMF was $611.4M while for HMB Shareholders’ Equity was $343.0M

Point Lisas Industrial Port Development Corporation Limited (PLD) is a public company owned 51 per cent by the Government of Trinidad and Tobago. PLD’s two core activities are Industrial Real estate management and Port management and operations, including handling services. PLD falls under the Property sector on the TTSE and currently accounts for approximately 0.17 per cent of total market capitalisation. The offering should have little impact on market capitalization.

It is important to note however the strategic importance of the Port’s operations. The facility provides access to the largest industrial estate in the region. It also provides excellence access to the Latin and South American markets. Retention of majority ownership by the Government may be more strategically important than expanding the local equity market.

Clico Trust Fund

The Minister of Finance outlined in the budget that a Trust Fund will be created to hold Republic Bank Limited (RBL) shares. The Clico bondholders with 11-20 year bonds can exchange these bonds for units in the trust.

The Finance Minister mentioned that the Trust would be listed on the TTSE upon completion of the process of exchanging the bonds for units. He indicated that the units in the trust can be traded within the trading structure of the domestic capital market.

Junior Market Initiative

The Minister of Finance in his Budget presentation proposed the creation of a third tier of Junior Stock Market on the TTSE to facilitate the SMEs with access to the capital market. Eligible entities with a minimum capital of $5M and a cap of $50M would be able to list on the Junior Stock Market. According to the Minister, entities must have a minimum of 25 shareholders, holding at least 30 per cent of the Share Capital.

This initiative according to the Chief Executive Officer of the TTSE will take time and by the end of the fiscal year 2012, the market should start seeing listings. He also made reference to Jamaica’s Junior Market indicating that for the first year there was not any listing of companies but by a year a later they had about 10 listings.

Regional Stock Market

The Budget also outlined the initiative to develop a Regional Stock Market beyond the arrangements made on the Jamaican, Barbados and Trinidad and Tobago Stock Exchanges. This according to the Minister will “provide important opportunities for integration of the region and private returns and investments opportunities for our citizens. ”

Conclusion

The initiative presented in parliament should serve to enhance the local stock market and bring greater investment opportunities to the local community. Effective and timely execution of these initiatives will be vital to the success of the said measures.

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