History was created on Thursday when the chairman of three of T&T's premier institutional investors signed documents to consummate the acquisition of the equity of Pan West Engineers and Constructors, the GE Capital subsidiary that owned the ten per cent block of Phoenix Park Gas Processors shares.
The National Insurance Board (NIB), the Unit Trust Corporation (UTC) and National Enterprises Ltd (NEL) purchased the 9.22 million shares in Phoenix Park, a natural gas downstream producer based on the Point Lisas Industrial Estate, for a total consideration of US$168 million.This price is about ten per cent more than the US$600 million that state-owned National Gas Company (NGC) paid for a 39 per cent stake in Phoenix Park from ConocoPhillips in September 2013.
Questioned on the fact that the three local institutional investors paid more than US$153 million for the shares, UTC chairman Wendell Mottley said: "Our purchase price was supported by our valuations, especially discounted dividend flow and we are in this to clip the coupons–for the dividends.
"The dividends that we forecast, based on past performance and what we see in the future, would give us a very solid return, and that is the interest to us as passive investors."A NEL official at the Hyatt on Thursday said the higher price paid by the consortium was due to the fact that the sale of this ten per cent block by GE Capital was as a result of a public, international competitive bidding process, whereas NGC purchased its stake following bilateral negotiations with ConocoPhillips.
The official also noted that NGC, which had previously owned a ten per cent effective stake in Phoenix Park, received $139 million in dividends in 2013 and $133 million in 2014, which means the actual dividend yield on the existing ten per cent stake is about 12 per cent.In comparison, to the 12 per cent effective dividend yield earned by NEL from its ten per cent stake in Phoenix Park, the highest yielding T&T-based stocks, as at Friday's date, are:
�2 NFM with a yield of 4.5 per cent;
�2 Witco yielding 3.75 per cent;
�2 Republic Bank at 3.54 per cent; and
�2 Unilever at 3.04 per cent.
Bharath said that based on the US$168 million sale price, the price to earnings (PE) ratio was 8.3, which compared to other oil and gas companies "was extremely attractive, given the kind of yields it is generating."
Mottley added that the consortium purchased an energy asset trading at 8.3 times its earnings with a yield of close to 12 per cent, whereas a company like Republic Bank is currently trading at 16 times its earnings. To complete the comparison, Republic Bank has a dividend yield of less than 4 per cent and profit growth of 3 per cent.
Asked about Phoenix Park's growth prospects, NEL chairman, Kenny Lue Chee Lip said the producer and marketer of propane, butane and natural gasoline to regional markets is considering building a new facility on the Union Industrial Estate in La Brea.
Mottley said such a project would generate considerable upside for investors in Phoenix Park, but it formed no part of the valuation exercise conducted by the consortium.
Lue Chee Lip said that the value of Phoenix Park lies in the products it is able to extract from the natural gas stream. At this point, the natural gas being fractionated by Phoenix Park is unusually dry, which provides a potential upside for the company if new, wetter gas is discovered.
Mottley said Phoenix Park has been able successful in consistently selling small cargoes in the Caribbean market "under the radar of bigger players, who might find it a nuisance to contract small ships to get into small ports."As a result of the company's selling its products mainly to small Caribbean markets, Mottley said he did not think that shale gas from the US was a threat to Phoenix Park's future prospects.
Responding to trepidation expressed by Finance Minister Larry Howai–in a Business Guardiaqn interview earlier this month–that the acquisition would dampen the appetite of the three institutional investors for the upcoming Initial Public Offering of Phoenix Park shares, Bharath said the acquisition would be "a catalyst for more capital market investment and capital efficiency.
"There is a lot of inefficient use of capital on the sidelines. The IPO would create another opportunity to invest in a high-yielding, mature and attractive stock."NEL's Lue Chee Lip added: "Through this exercise, we know the company's potential. We know its value. If more shares come on to the market and are offered to us at an attractive price, I don't see how we would not take it up. I don't see the appetitite for Phoenix Park shares in the IPO being reduced from our side."
UTC's Mottley said: "We were able to give that assurance to the minister and furthermore , due to the fact that we have done proper due diligence on this company, we have underwritten the IPO as a result of the work we have done."A UTC official at the meeting said that it has a ten per cent limit on ownership in any one company, which means that the UTC can acquire nearly 7 per cent more shares in Phoenix Park in an IPO.
All three chairmen said the consortium approach was "most definitely" possible for the NIB, UTC and NEL in the future.Providing some background to this first consortium purchase, Bharath said the NIB was approached by GE Capital, the owners of Pan West Engineers, to submit a bid for the block of shares in a competitive arrangement.
Bharath said: "We were then approached by the Unit Trust who suggested to us that it would be better if we did not bid against each other, which would bid the price up."Forming a consortium would diversify the concentration risk on each of our balance sheets and keep the bid price at something we all agreed."He said the NIB thought that was an excellent idea and, with National Enterprises Ltd (NEL) coming on board shortly thereafter, the stage was set for the successful transaction.
On the issue of possible future acquisitions by the consortium, UTC's Mottley said: "Attractive energy plays have been beyond the reach of the t&T investing public, both institutional and individual."We at the UTC welcome this collaboration with NEL and NIB as it has borne fruit and we hope this is the first of more."
Lue Chee Lip said: "It opens up the possibility of more and bigger. As a single entity, we might not have the capacity to handle what comes up.
Responding to reports in the local capital market that Consolidated Energy Ltd, the new 100 per cent owner of Methanol Holdings (Trinidad) Ltd, is exploring the possibility of selling 40 per cent of its stake in the methanol producer to local institutional investors, NIB's Bharath said: "We would look at it certainly. It all depends on the metrics of the transaction. But we would have to look at each transaction on its own merits in comparison to what we have just invested in.
"This morning (Thursday) we saw that Clico assets are going to be for sale by the Government."T&T is well poised to start taking advantage of some of the transactions, domestically, that can yield a great deal of benefits to the people of the country."
Lue Chee Lip added: "We are all conservative organisations. We have to first look after our stakeholders' value. We are not going gung-ho after each and every investment that comes our way. We do our due diligence and if we find an investment that is attractive, we would take appropriate action."
The NEL chairman said that the investment holding company–which is 66-per cent owned by Corporation Sole, 17 per cent by NGC and 17 per cent by local institutions and individuals–financed the US$56 million acquisition of 3.33 per cent of Phoenix Park partly by its US dollar cash retained earnings and partly by debt. Some US$23 million was in cash and the company borrowed US$33.5 million in a bridging loan, which will be repaid by dividends received from its 51 per cent ownership of Tringen, its stake in Atlantic LNG Train I and its existing holdings of Phoenix Park shares.
Asked about the impact of the investment on each of their institutions, NIB chairman Adrian Bharath said the US$56 million ($358 million) spent amounted to 1.4 per cent of the NIB's total investment portfolio.Bharath added: "We were happy with this investment because we were quite light in owning oil and gas stocks. When the IPO comes out, hopefully next year, we are going to be very interested in increasing our stake in Phoenix Park.
"We had a significant amout of US cash earning close to zero per cent. At the NIB we look for yield and long-term investments."It says a great deal about the the country where we have an historic transaction like this. It turns the company into an entirely locally owned entity and that is where we need to have a concentration of most of the assets we own. It needs to go back to the people of the country.
"I think institutions like ours need to have a social responsibility with respect to these transactions to ensure that the heritage of the island is retain of and by the taxpayers of the country."UTC chairman, Wendell Mottley, said the transaction gives every unitholder in the UTC's first scheme (the growth and income fund) a stake in the energy sector, the lifeblood of the country."Moreso, we will be receiving dividends going forward in US dollars."
The UTC's US$56 million investment in Phoenix Park shares will form 7.2 per cent of the portfolio of the growth and income fund.NEL chairman Kenny Lue Chee Lip said the investment would form about 7 per cent of the company's portfolio. He said NEL expected about $40 million in dividends every year and he expected the acquisition to increase their income by about ten per cent.
Asked what the investment means for the man-in-the-street investor, Bharath said: "It's an historic transaction as the NIB has a duty and a mandate to manage our investment portfolio to ensure