First Citizens Group chair Nyree Alfonso: Oversubscription of IPO expected

The initial public offering (IPO) of shares in First Citizens bank is now scheduled to take place in May, says Nyree Alfonso, the chair of the state-owned banking group.

 

Former Minister of Finance Winston Dookeran first mentioned the Government's proposal to divest shares in the 2012 budget, which was presented on October 10, 2011, when he said that the IPO “will not affect Government ownership of the bank,” but would “assist the bank in widening its capital base and so facilitate its expansion programme in which the bank is currently engaged.”

 

Explaining the decision to proceed with the IPO in May, rather than in March, which the bank had contemplated late last year, Alfonso said the bank has “experienced a very good first quarter and expects to have a very good half-year performance,” from October 1 to March 31.

 

“We want to be able to capitalise on what we think would be a very good half-year performance,” Alfonso said.

 

The current thinking is that the Government would sell 20 per cent of the 237 million shares that comprise the First Citizens share capital. That means about 47.4 million shares will be available for sale in the May IPO.

 

Sources close to the sale disclosed that the Government was giving consideration to pricing the shares at between $20 and $22 each. 

 

First Citizens expects to time the half-year dividend so that the new shareholders of the bank would benefit by receiving a distribution within 30 days of the completion of the IPO, Alfonso said.

 

Asked about the percentage of the bank's profits that would be paid out as dividends at the half year, Alfonso said that that issue, and others, was still be finalised by the bank in consultation with the professional services firm, PricewaterhouseCoopers, which is part of the transaction advisory team.

 

“But if we have to compete with Scotia and Republic Bank, our dividend would have to be competitive with theirs,” she said.

 

The bank paid out 37 per cent of its after-tax profit of $718 million as a dividend in the year ending September 2011 and 24 per cent of the $446.4 million that the company earned in 2012. (See sidebar)

 

In terms of the allocation of shares, the Government has decided that the long-term, institutional investors would receive a majority of the shares to be sold at the IPO:

 

• Registered mutual funds including UTC, will receive 25 per cent of the IPO;

 

• Pension and other trust funds, credit unions and coops will receive 25 per cent;

 

• The National Insurance Board will receive ten per cent.

 

This means the institutional investors will receive 60 per cent of the shares to be issued at the IPO.

 

The balance of the shares will be distributed as follows:

 

• Companies registered in T&T will receive ten per cent

 

• Individual investors who are nationals of T&T will be able to purchase 15 per cent of the shares on offer;

 

• Employees of the group, who number about 1,800 at present, have received an allocation of 15 per cent.

 

Further, Alfonso said, all employees of the bank will be entitled to purchase shares in First Citizens at a ten per cent discount of the market price at the IPO.

 

Alfonso said the bank would be offering loans to its employees to buy the shares of the bank, with the bank holding the shares as collateral. She stressed that all employees would be entitled to receive the same number of shares.

 

If there is an oversubscription, there will be a proportionate assignment of shares in accordance with the initial offering of shares. 

 

Alfonso said the board of First Citizens expects the issue to be oversubscribed because the local capital market is so “dry.” 

 

Reflecting on the fact that long-term investors are likely to hold the majority stake in First Citizens after the IPO, Alfonso said this was “a deliberate attempt by the Government to create an investment vehicle that would stimulate the generation of income through dividends which would assist the population in terms of retirement planning.”

 

The allocation of 60 per cent of the IPO to local mutual funds, pension plans, credit unions and the NIB would also reduce the possibility of some persons or group of people “capturing the IPO,” she said.

 

Fears had been expressed by Vincent Cabrera, the head of Banking, Insurance and General Workers’ Union, the trade union representing workers at First Citizens, that the divestment of 20 per cent of First Citizens would end up “opening the way to foreign ownership of shares in an institution which is of great strategic value to the Government and people of T&T.” 

 

In a letter published in the Business Guardian in October, 2011, Cabrera argued: “Regardless of how much education and awareness is imparted to employees or to the public, we will not all own shares. Those who have will always have a more than fair share than those who do not have and those who have a lot, will have an unfair advantage over those who have much smaller quanta of funds in the form of disposable income or available cash for the purchase of shares.” 

 

Alfonso said: “We expect that the way the IPO has been structured will allay the fears of all those who argued that the Government was selling out the bank to foreigners.”

 

The bank is optimistic that the share price would appreciate over time which augurs well for any additional issue of shares in the future.

 

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The after-tax profit declared by First Citizens, the state-owned banking group, declined by 37.7 per cent for the financial year ending September 30, 2012 because the bank decided to adopt a more conservative tax strategy, the bank’s Chief Financial Officer, Shiva Manraj, said in an interview on Monday.

 

The bank declared after tax profit of $446.4 million in 2012, which was down by more than a third from the $718.2 million it reported in the previous year.

 

Explaining the decline in the after-tax profit of the indigenous bank, Manraj said: “That was because the bank decided to re-assess its tax strategy in relation to the pursuit of the tax benefits to be derived from swap instruments used to manage its foreign exchange exposure arising on US dollar bonds sold by the bank.”

 

Manraj said First Citizens had a tax charge of $267.7 million for the 2012 financial year compared with a $29.6 million tax credit in 2011.

 

The 2012 tax charge decreased the profit before taxation of $714.1 million to an after-tax profit of $446.4 million.

 

"We reassessed the tax strategy leading to a change in the tax estimates, in consultation with our tax advisors and after careful evaluation of all relevant factors,” said Manraj, adding: “This change in estimate, amounting to an additional tax charge of $128.3 million, was recognised in the income statement for the year ended 30 September 2012 in accordance with the relevant International Financial Reporting Standards.”

 

First Citizens entered into derivative financial instruments to manage the foreign exchange exposure arising from the US dollar bonds it issued.

 

The additional tax charge of $128.3 million relates to a US dollar bond that matured in February 2011 with a bullet payment of US$100 million. The tax issues relating to that bond are not expected to recur in future, said the First Citizens CFO.

 

Despite the reduction in its after-tax profit, Manraj said the bank continued to perform robustly in 2012, pointing to the 3.7 per cent increase in the First Citizens profit before tax, which went from $668.5 million to $714.2 million.

 

He noted that the group’s assets increased by 9 per cent from $31.2 billion to $34 billion and that the First Citizen’s capital base had climbed by 11.7 per cent from $5.1 billion to $5.7 billion.

 

In addition, Manraj said First Citizens acquired Butterfield Bank in Barbados for US$45 million and has rebranded the business which is now known as First Citizens Bank (Barbados) Limited. The acquired business contributed revenues of $11.5 million and net profit of $0.09 million to the group for the period from August 27 to September 30, 2012, according to the bank’s 2012 financial results.

 

First Citizens also established a subsidiary in Costa Rica to assist clients in Latin America maintained its investment grade rating at BBB+ and Baa1 from Standard & Poor’s and Moody’s respectively.