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First Citzens IPO tops business agenda

Published: 
Thursday, January 2, 2014

Some of the biggest companies in T&T’s business sector captured headlines in 2013.Investors, individual and institutional, received the news of the initial public offering (IPO) of shares in First Citizens with much excitement. Brokers were hard-pressed to keep up with the investing public’s need to own a piece of T&T’s indigenous bank, however small. It was hugely oversubscribed, attracting more than $3 billion in offers while, according to the prospectus, the net proceeds were an estimated $1.05 billion after the deduction of transaction expenses, which were about $13.6 million, but before employee discounts. First Citizens launched the largest ever IPO of shares in the history of the T&T Stock Exchange with a market value of approximately $1.1 billion on July 15, 2013, at an offer price of $22 per share. The bank offered 48,495,665 shares for sale to the public, representing approximately 19.3 per cent of the total shareholding. Speaking before the planned September 16 listing of First Citizens on the T&T Stock Exchange, Wain Iton, the then TTSE general manager and chief executive officer, described it as “a sound investment” and “a quality listing.” The First Citizens shares ended that first week at $34.94 per share and just before Christmas, the share traded at $40.25—an increase of about 83 per cent from its initial offer price.

 

First Citizens shareholders have all reason to be pleased as punch. First Citizens stated in the prospectus it will target an annual dividend payout percentage of between 45 and 55 per cent of its net profit after tax. Late in December, First Citizens declared after-tax profits of $606.5 million for its 2013 financial year, which represented an increase of $160 million or 36 per cent compared with its 2012 results. With earnings per share of $2.41, the bank’s declared dividend of $1.09 is equal to 45 per cent of its after-tax profit—an indication that the company has given itself the possibility of hiking its dividend payout percentage in years to come. Chairman Nyree Alfonso reported that for the year ended September 30, 2013, the bank’s profit before tax grew by 3.9 per cent to $742.2 million as compared to $714.2 million in the previous year. Profit after tax was recorded at $606.5 million representing an increase of $160.1 million or 39.9 per cent when compared with 2012. This is the same bank, deputy chief executive officer Sharon Christopher said in the book, On Becoming First, that was once disparagingly called scrap metal but has since gone on to become the highest rated of T&T’s domestic banks in the entire English-speaking Caribbean. It had the honour of labelling it for the third consecutive year the only bank in the Caribbean to be named amongst the safest banks in Latin America and the Caribbean region. Global Finance used a comparison of the long-term credit ratings and total assets of the world’s largest banks and ratings from Moody’s, Fitch and Standard & Poor’s. The Unit Trust Corporation was among several institutional investors in the IPO, with its executive director Ian Chinapoo saying the corporation UTC applied for and received 6.06 million shares, exactly half of the 25 per cent of the shares offered to mutual funds, and 12.5 per cent of the 48,495,665 shares on offer and 2.5 per cent of the bank’s total shares. The UTC’s investment has reaped rewards, earning it paper profits at $110 million by yearend.

 

NGC’s invests big
The second largest financial transaction to capture the business community’s interest was the National Gas Company’s (NGC) acquisition of the 39 per cent stake in Phoenix Park Gas Processors Ltd (PPGPL) held by  United States-based energy giant ConocoPhillips  in a US$600 million deal. Speaking at the end of the official opening ceremony for the 2013 Deepwater Bid Round in Port-of-Spain in August, Energy Minister Kevin Ramnarine, said the deal had been signed. Ramnarine said the NGC acquisition was the Government’s largest through one of its state enterprises since 1985 when T&T acquired Texaco Trinidad Ltd refinery, now Petrotrin. Prior to the deal, NGC had a 51 per cent interest in PPGPL. The transaction gave the state-owned natural gas distributor a 90 per cent stake. In 2001, NGC divested 20 per cent of its shares to National Enterprises Ltd (NEL). The remaining ten per cent is owned by Houston, Texas-based Pan West Engineers and Constructors Inc, a subsidiary of General Electric. For the year ended December 31, 2012, NGC recorded a $3.930 billion after-tax profit, about $670 million less than the $4.604 billion profit it made in 2011. The company ended 2012 with $12.34 billion in cash and cash equivalents.

 

NGC had expressed an interest in acquiring ConocoPhillips’s 39 per cent share since 2003. ConocoPhillips changed its mind in 2004, but reversed that decision in 2013. Before proceeding with the deal, NGC sought the opinions of First Citizens and Credit Suisse, with the two endorsing the buy. Speaking on the composition of the PPGPL board, Ramnarine said there were seven directors: four from NGC, two from ConocoPhillips and one from GE. Now NGC will have six out of the seven. “This gives us control of an asset responsible for marketing liquefied petroleum gas (cooking gas) and natural gasoline,” Ramnarine said. Following the transaction, NGC chairman Indar Maharaj described NGC’s acquisition of an additional 39 per cent stake in PPGPL as an “excellent” deal for the company and T&T. The transaction was financed from NGC’s internally-generated resources, said Maharaj in a Business Guardian interview, at which he was accompanied by NGC’s vice president, commercial, Anand Ragbir. “When we look at the price we paid for it and the strategic and financial returns from it, we know that we got a very good acquisition,” Maharaj said.

 

He said PPGPL has been a very profitable operation over the years because it gets its raw material, natural gas, from the NGC “at what we consider to be a low price.” “What it meant, therefore, is that PPGPL has a low-cost input that generates a high-value end product, which would have resulted in the company generating a great deal of cash, making it a very profitable operation,” Maharaj said. Speaking at NGC’s Christmas function at the Hyatt Regency Trinidad hotel, Ramnarine said 2013 would go down as the year the NGC was transformed from a  company that had a narrow remit to  transport, aggregate and market natural gas to a fully integrated gas company. He said three major feats were achieved in 2013 at NGC: a move by NGC to self-market its LNG cargoes; the acquisition of 39 per cent of PPGPL and the acquisition of Blocks 2c and 3a, which “gives us a larger presence in the upstream.” Ramnarine said one major initiative to expect from NGC in 2014 is the listing of a portion of PPGPL on the T&T Stock Exchange. “This may eclipse the FCB IPO of 2013,” he said.

 

Gas shortage issues
The planned turnaround of bpTT’s Cassia B offshore gas facility, one of the energy company’s 13 offshore platforms, in September, was a significant development in the energy sector for 2013. The maintenance intervention cost $50 million. Two-thirds of bpTT’s daily gas production is delivered through the Cassia facility, which has operated 34.5 miles off the southeast cost of Trinidad for the past ten years. The manned facility is designed to handle up to two billion standard cubic feet of gas per day. In a statement, bpTT said the project included only ten days of material impact on bpTT’s gas supply. During that period bpTT conducted modifications to the facility to allow gas from its other offshore installations to bypass the Cassia hub. “Early completion of the turnaround was due to many factors, including simultaneous activity on the turnaround scope made possible by the early completion of the bypass work in the first ten days of the project, no coating repairs being required for the vessels following inspections and good weather during the period,” read the statement.

During that period bpTT conducted modifications to the facility to allow gas from its other offshore installations to by-pass the Cassia hub. These modifications significantly reduced the production impact for the remainder of the planned maintenance activity, it said. “Over 30,000 manhours were spent planning the $50 million activity, which included a turnaround and employed over 120 nationals,” bpTT said. Given the concern over market impact, bpTT said it worked with the Government and key stakeholders to align the Cassia programme with Atlantic’s turnaround on Train 3 and the planned maintenance work of the downstream operators. “This alignment of upstream, midstream and downstream activity resulted in minimal impact to the market due to the reduced gas demand over the period.” “The Cassia turnaround and work programme were of critical importance to our country and company,” said bpTT president Norman Christie. “We are proud that our team was able to safely complete the work ahead of schedule with minimal disruption to gas supply,” the statement added.

 

Plans to mitigate the effects of the turnarounds on the market took place over eight months. The Ministry of Energy and Energy Affairs worked with NGC and the Point Lisas Energy Association (PLEA), a group of 21 major companies operating in the downstream energy sector, Atlantic, bpTT and BG T&T, to co-ordinate and reduce the impact of the scheduled maintenance work on Cassia B and BG T&T’s Dolphin platforms between September and October. The facility is expected to be offline for approximately 35 days to conduct vessel inspections and upgrades. The initial turnaround for BG T&T’s Dolphin platform, in operation for 17 years, was planned for 26 days, but BG T&T reduced this time while  maintaining the original scope of works. And, Atlantic’s Train 3 Train 3 was also taken offline for 28 days of planned maintenance.

Trinity strikes gold
Independent Trinidad company Trinity Exploration and Production ended 2013 on a happy note. In early December, Trinity reported an oil find of an estimated 115 million barrels in east Trinidad. Energy Minister Kevin Ramnarine described the only major oil find announced for 2013 as “good news for T&T” for the Christmas season. “We have some positive news for the economy and the country,” he said. In a statement, Trinity’s largest independent exploration and production company announced its third exploratory drill had hit black gold in the TGAL-1 well, off Galeota on Trinidad’s southeast coast. Initial estimates show the reservoir contains a production range of 50 million to 115 million barrels of oil. TGAL-1 was spudded on October 31 to target an updip extension of the producing Trintes Field, using the Rowan Gorilla III jack-up rig. The well was drilled to a total depth of 5,694 feet, intersecting five targets all containing good quality oil bearing reservoir sands. The TGAL-1 well encountered a total of 547 feet net oil sands containing high quality 28-30 degree API oil.

 

The API, or American Petroleum Institute, gravity is a standard measure of density to determine how heavy or light the petroleum deposits are. The higher the density (that is, the lighter the oil) the more valuable it is. This find may be classified as medium to light crude oil. Generally speaking, crude oil with density range of 40 to 45 commands the highest prices. T&T’s east coast wells generally produce a “light sweet crude” (low sulphur content) with an average API rating of 38 degrees. Trinity acquired the Galeota licence after its merger with Bayfield Energy Holdings in early 2013. Last year March, Bayfield struck oil with its first exploratory well, EG8, in the same block. The production estimates for that find were 32 million. Galeota Licence provided for seven exploratory wells. TGAL-1 was the third venture. The company’s second exploration venture was unsuccessful. Trinity’s two out of three success already surpasses the usual odds of one well in seven striking oil. The Trinity Group has a 65 per cent interest in the Galeota Licence, with Petrotrin holding the remaining 35 per cent. With this discovery, Trinity said it will now be assessing appraisal and development options. Production on the well is expected to begin by 2015.

 

Non-energy sector

The non-energy sector continued to expand in the third quarter of 2013, but at a slower pace than the previous two quarters. According to the November 2013 Monetary Policy Report, initial data indicate that the non-energy sector rose by 1.9 per cent (year-on-year) in the third quarter compared with 2.6 per cent in the second quarter and 3.6 per cent in the first quarter. Growth in the third quarter was largely associated with finance (4.4 per cent), construction (3.0 per cent) and distribution (1.1 per cent) sectors. Heightened activity within finance was partly attributable to strong performance within the commercial bank sub-industry, as banks recorded growth in loans and deposits in the second quarter. The report said the increase in construction activity was likely related to several public sector projects, including highway construction and housing, and perhaps to a lesser extent, some private sector developments. Local sales of cement – a key indicator of construction sector activity – was up on a year-on-year basis by 12.5 per cent in the third quarter. 

 

There were also positive indications of growth in the distribution sector. For example, sales of new motor vehicles increased by 13.1 per cent (year-on-year) in the third quarter of 2013.
The agricultural sector also recorded some growth. The Central Bank said estimates from data supplied by the National Agriculture and Development Corporation indicate the agriculture sector grew by 1.9 per cent in the third quarter of 2013. Supplementary information for the third quarter of 2013, sourced from the Norris Deonarine Northern Wholesale Market, showed increased local volumes of selected commodities at the market. Comparatively better weather conditions throughout the majority of 2013 and the continuation of targeted policies aided strong growth for the period. The Central Bank said after posting strong growth of 4.6 per cent in the second quarter, activity in the manufacturing sector was flat in the third quarter of 2013.

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