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Will Cemex end up owning TCL?

Published: 
Thursday, August 21, 2014
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New TCL chairman Wilfred Espinet, left, consults Stuart Young, attorney for the TCL shareholders at Tuesday’s special (compulsory) meeting at the Radisson Hotel, in Port-of-Spain. PHOTO: ABRAHAM DIAZ

Tuesday’s landmark special (compulsory) meeting of shareholders of Trinidad Cement Ltd (TCL), at the Radisson Hotel in Portof- Spain, signalled the end of the battle for control of the cement producer that began in May 2013 with Wilfred Espinet, who currently runs his own businesses but was once an executive director within the Associated Brands empire.

Espinet was elected as the first chairman of the new TCL board at a meeting at the Radisson that followed shortly after the special (compulsory) meeting, in which retired permanent secretary Alison Lewis, Chris Dehring, Glenn Hamel-Smith, Nigel Edwards, and Cemex executives Carlos Palero and Francisco Aguilera were also elected.

Espinet was the main instigator of the move by shareholders representing 5.68 per cent of TCL’s issued share capital to bring an injunction to stop the company’s annual meeting in July 2013.

That injunction was brought because TCL—then under the control of Andy Bhajan, its chairman, and Rollin Bertrand, its CEO—refused a proposal from the group of 11 shareholders, that included Espinet, Kamal Ali, Issa Nicholas, Helen Bhagwansingh, Tatil Life Assurance Ltd and a Barbadian entity named Bourne Investment Inc, to accept five nominees on the management proxy circular to serve as directors. The five originally proposed to serve as TCL directors were: Garth Chatoor, Emile Elias, Imtiaz Rahaman, Gregory Thompson and Kelvin Mootoo.

In the affidavit accompanying the case brought by the 5.68 per cent TCL shareholders in July 2013, Espinet stated: “I have noted with much concern over the past four or five years, the fact that TCL has been struggling financially so much so that:

• The directors have not declared a dividend for the years ended 2008 to 2012 • TCL has had to engage in major debt restructuring as a result of it being unable to properly service its debts of approximately $2 billion • The share price of TCL has dropped from $10.25 a share in the fourth week of June 2008 to $1.05 a share as at July 10, 2013. This means that a shareholder who held an investment in TCL through shares, would have seen his investment decline by 90 per cent from June 2008 to date and he would not have had any dividends paid to him during this time either.”

Espinet, in the affidavit, said, as a result of his concerns about the performance of TCL, he spoke with a number of people, including his “personal friend” Ian De Souza, the CEO of Republic Bank Barbados. According to the Espinet document, he was told that Republic Bank, which held TCL shares through its pension plans, was also concerned about the cement producer’s performance from a shareholder’s standpoint.

There are several interesting points to note about this intervention by Espinet and De Souza, who were able to mobilise some other TCL shareholders. Firstly, this was a group that was dissatisfied with the performance of TCL and their return on their investment in the company.

Secondly, the original group brought together Republic Bank with a disparate group of individuals and companies of significant financial means, who each held fairly large individual stakes in TCL. In other words, as investors, this group of shareholders would have suffered losses as a result of the suboptimal performance of the shares of the cement producer, which reflected its sales and profits, since 2008.

To be fair to the former directors of TCL, much of the company’s performance between 2008 and 2012 can be attributed to the sharp decline in construction throughout the Caribbean as a result of the global financial crisis but also because TCL’s upgrade of its Jamaica operations was over budget and late.

The upgrade was originally funded with US$105 million in financing that was structured and arranged by the International Finance Corporation (IFC), the private-sector arm of the World Bank Group. A major component of the IFC’s financing came from Republic Bank, which provided TCL with a US$20 million loan and a US$50 million equivalent bond issue in T&T dollars.

This means, thirdly, that Fincor (Republic Finance and Merchant Bank Ltd) provided 66.6 per cent of the original financing for TCL’s upgrade, which means not only was the bank a trustee of TCL shares through its pension plans, but it was also one of the cement company’s largest creditors.

The fourth point about the corporate overthrow at TCL is that this was an historic victory for shareholder democracy, as the vote in favour of the election of the seven new directors until the conclusion of the next annual meeting of TCL was approved by 83.33 per cent of TCL’s total shares.

I think the reason the Bhajan/Bertrand board was forced out was because the TCL shareholders, in their collective wisdom, probably thought that they would prefer that the company be run by people who were not fighting its stakeholders— including its shareholders; its trade union (wage increases and back pay); its creditors (snide remarks about usurious interest rates); and its customers (nine per cent wage hike in cement prices).

The reason that the vote in favour of new directors was so high was because there was an alliance of shareholders who wanted the Bhajan/ Bertrand board out. This alliance would have included the Oilfields Workers’ Trade Union, large local institutional investors (such as NIB and UTC), the largest single shareholder (Cemex) and large individual shareholders.

But what do these TCL shareholders want? Unfortunately, they were not given an opportunity to speak at Tuesday’s meeting, although they had not attended any TCL meeting since October 2012.

Do the TCL shareholders want to sell their shares to Mexican cement giant Cemex for the highest sum in the short term?

If the shareholders sell the company to the Mexicans, are they prepared for the risk that Cemex will then close all of TCL’s cement production capability in Trinidad, Barbados and Jamaica and supply the Caribbean from an existing, lower cost Cemex facility? (See story on page 14.) Will Cemex go back to the future and make a bid to take over TCL as it did 12 years ago?

Or do the TCL shareholders want the three Cemex directors to work with the local board members to improve shareholder value over the long term, as the company moves to restructure its debts and pay off the $100 million backpay to workers?

Cruel cut?

 

The fact that the seven new TCL directors—along with existing directors local business executive Wayne Yip Choy and Cemex executive Alejandro Cantu—chose Espinet as their chairman would have been viewed as the cruelest cut of all by the six directors of the company who submitted their resignations on Tuesday afternoon. 

That was shortly after the Court of Appeal dismissed a last-ditch attempt by them to get an injunction stopping Tuesday’s special (compulsory) meeting of TCL shareholders. The outgoing directors would have been hurt by Espinet’s appointment as the new TCL chairman because the Andy Bhajan/Rollin Bertrand TCL board in August 2013 had filed a complaint of price rigging with the T&T Securities and Exchange Commission (SEC) against Republic Bank, Wilfred Espinet and Ian De Souza.

That TCL board had also requested that the SEC undertake an investigation pursuant to Section 150 of the Securities Act into whether or not De Souza and Espinet have contravened the insider trading provisions contained in Sections 100 to 101 of the Securities Act. 

These SEC matters were raised by the attorney for the former TCL directors, Claude Denbow, during his 100-minute attempt on Tuesday to get the Court of Appeal to stop the special (compulsory) meeting. But Denbow was shot down by the Justices of Appeal (in particular, on this point, by Maureen Rajnauth-Lee) who pointed out that the SEC could very well “completely exonerate” Espinet from all the allegations that the former board had made against the two men.