The recently announced Cemex bid for majority control of TCL and the revised enhanced offer published on January 10, must be seen as the last best option for the beleaguered regional cement business–despite a virtual monopoly in major CARICOM markets–which was run into bankruptcy.
By 2014 TCL recorded its second loan default, accumulated a crushing debt north of US$ 300 million, was in desperate need of plant upgrades, and used price increases to cover rising production costs resulting from the curtailment of maintenance programmes.
Not surprisingly, after an extensive international 'crusade' to raise capital, senior executives returned empty handed.
Apparently, TCL's swelling losses, rising costs, and over leveraged balance sheet failed to impress investors.
Locally, frustration and lack of confidence in TCL's management prompted shareholders with no prospects of future dividends and risk of losing their investments to resort to their only 'option'.
In August 2014, a significant shareholder group removed TCL's CEO also making a series of changes within the management and board.
The 'new' team reportedly implemented a plan to restructure the group's withering debt burden and crippling collective agreements to attempt to rescue this pivotal company, a key component in the construction sectors of CARICOM countries.
Even though this 'option' successfully bought time to begin plant upgrades and comprehensive restructuring, the challenges of raising capital remained.
According to a well-placed insider, recapitalising TCL remained a problem with a 20 per cent shareholder limit in place.
Another stakeholder cautioned: "Competitively priced exports is the only hope for TCL, our region already has two million tons of excess capacity...we can't afford plant upgrades or technical capabilities."
In March/April 2015, the 20 per cent ceiling which represented an impediment to further investment (that entrench bad management) was removed and a subsequent issue of new TCL shares increased the company's capital by US$ 57 million.
While few local shareholders participated, Cemex, the Mexican giant and third largest cement company globally, a 20 per cent stakeholder, upped its ownership to 39.5 per cent by investing around US$ 50 million.
Certainly, although TCL and its operations in Trinidad, Barbados and Jamaica have a long way to go to reach the goals of profitability, competitiveness and sustainability that Chairman Espinet and his board have set, apparently performance in key operational areas and its financial situation have improved.
It is reported that Cemex has put senior management professionals from its global network into the TCL Group to, according one executive: "incorporate best practices and technologies and upgrade the capabilities of local management and work force." This appears to be one of the major drivers influencing the turnaround of TCL.
Now, 15 months after increasing its stake in TCL, Cemex is bidding for control, at a time when according to the IMF, growth scenarios are deteriorating for commodity-dependent economies.
It said: "Trinidad and Tobago is one of the most affected because it depends on fossil fuels and prices can't seem to attain stability."
Given that local investors didn't take up much of the new share offering, the opportunity was there for Cemex to demonstrate confidence in T&T and TCL. Maybe it is really the 'last best option' for TCL!
Not surprising, are the few protesters commenting on the demerits of Cemex owning the majority of TCL. They have also 'determined' what Cemex should pay for the privilege of rescuing this important industry employing thousands of 'our people' across the region from the jaws of extinction. Predictably none have highlighted that Cemex recognised the importance of maintaining local participation in this regional industry; structuring its bid to retain local ownership and TCL's continuity in the local equity market.
By contrast, renowned international rating agency Fitch Ratings reported: "Cemex's bid to increase its stake in TCL would be a positive rating trigger for the Trinidad-based company", also noting, "an increase in Cemex's current stake in TCL to 74.9 per cent could result in an upgrade of at least one notch to TCL's 'B-' rating".
For Cemex to consider this bid successful and TCL to deliver value, Cemex must achieve control at an affordable price, to accommodate additional major life-saving' investments in T&T, Barbados and Jamaica to bring these operations to international standards and achieve global competitiveness and long term sustainability," says another company executive.
Offer now at $5.07, a 50 per cent premium–highest price in five years, payment option in $US.
Recent imports of competitively priced Turkish cement represent the 'clear and present danger' of only looking inwards. In today's world, a successful global partner is not constraining...it's liberating.
Since local investors have not demonstrated either the appetite or confidence to keep a regional cement industry alive and well...then perhaps Cemex is TCL's last best option!
Bert Jones
Recently retired executive director of PwC ASL