I have read with interest an announcement published on February 7 in all three daily newspapers, by Dodridge Miller, group president and chief executive officer of Sagicor Financial Corporation (SFC), a publicly-listed company trading on the T&T, and Barbados Stock Exchanges. The publication states, inter alia: "Sagicor has started discussions with the International Finance Corporation (IFC), with a view to developing a significant partnership between the two institutions....in addition to exploring strategic business opportunities, immediate discussions are focused around an investment by IFC of up to US$100 million in the form of common and preferred shares in Sagicor. "If agreement is reached with IFC, existing shareholders will have an opportunity to participate in the purchase of additional shares. The investment by IFC is subject to the completion of successful negotiations between Sagicor and IFC, and all necessary approvals, including the approval of the appropriate regulatory bodies and Sagicor shareholders."
This immediately caused me to reflect on two similar publications of recent vintage, namely the May 21, 2010, announcement by Guardian Holdings Ltd (GHL) of the IFC transaction to invest US$75 million ($473 million) in the common equity of the GHL at a price of TT$16 per share; and, secondly, the December 29, 2009, announcement by SFC to do a private placement or sale of 4.2 per cent of its share capital to the National Insurance Board of Barbados (NIB). For those readers who may not be too familiar with these two transactions, in the case of the former, the IFC agreed to invest US$75 million ($473) million in the share capital of GHL, which resulted in the issuance of approximately 29.6 million new shares to the IFC. At the time, GHL owed the IFC US$50 million ($315) million, therefore, the transaction represented a conversion of the existing debt to equity and the balance of US$25 million ($158 million) in new monies being available for future expansion.
Shareholder equity increased by $473 million and debt obligations decreased by $315 million, along with the related interest expense. However, the earnings per share (EPS) was reduced by approximately 13 per cent and the value of the existing shareholders shares was diluted by 12.8 per cent.
It should be noted that according to GHL, in the absence of this transaction, the future growth prospects of the company would have been hampered by the weakening of its balance sheet arising from the write-off of its United Kingdom operation. In the case of SFC, the Corporation issued an additional 11,766,705 common shares to the NIB in a private placement at a price of Bds $3.32 per share.
This price represented a 5.0 per cent discount off the trading price of Bds $3.50 of Sagicor's shares on the Barbados Stock Exchange on December 29, 2009, the date of the issue of the shares. The number of new shares amounted to 4.2 per cent of the total number of shares in issue prior to the placement (279,136,456 shares), which brought the total number of shares in issue to 290,903,161. The resulting effect of the transaction was a reduction in the percentage ownership of existing shareholders or a dilution of the existing shareholders shares by 4.0 per cent of their previous holdings. As you may have observed by now, the common denominator in the above two transactions is that at the end of the day, both groups of shareholders were diluted.
Accordingly, the potential SFC/IFC transaction raises some very important questions, as follows:
• Why would the IFC wish to invest in SFC at this particular time?
• Is there a need for SFC to raise capital at this time, and if so, why so, and what are the other options available?
• At what share price would the IFC be willing to invest in SFC and would it be at the current market price or below?
• To what extent will existing shareholders be diluted?
• How will this transaction benefit existing shareholders?
• Will the IFC be seeking to have a seat(s) on the board of directors?
• What impact, if any, will this have on the management and/or control of the company?
• Will amendments to the SFC by-laws be a pre-condition of the transaction and, if so, which ones are likely to be affected?
Finally, I am persuaded that appropriate answers to the above questions will be of tremendous assistance to minority shareholders like myself in not only understanding the nature of the discussions/negotiations with the IFC at this time, but also in making more informed decisions about my SFC investment going forward.
Peter Permell
Minority shareholders' rights advocate
ppermell@yahoo.com