Feb 2015 Financial News

Espinet: Cemex bogey close to hysterical levels

Feb 05, 2015

Trinidad Cement Ltd (TCL) chairman Wilfred Espinet says the company’s proposal to remove the 20 per cent cap on the ownership of shares in the regional cement-producing group opens the door for anyone to take control of the company.

Speaking in an interview on Tuesday night at the Hyatt Regency hotel in downtown Port-of-Spain, Espinet was responding to criticisms that the proposal—which is due to be voted on by the company’s shareholders at a special meeting of TCL on Monday—will open the door to the Mexican cement giant Cemex acquiring majority control of TCL.

The relationship between the vote to remove the 20 per cent cap and the possibility that it could open the door to the acquisition of TCL by Cemex was first raised in a news report in the Guardian on December 30 but was repeated in a statement by the Oilfields Workers Trade Union (OWTU) on Monday.

Asked if the removal of the 20 per cent cap opened the door to Cemex taking control of TCL, Espinet said: “The question is one that has been raised to a pitch now and I am viewing it that we are almost getting to hysterical levels of the Cemex bogey.

“Let me say this much: the directors are very clear in their minds that there are sensitivities in T&T and perhaps the entire Caribbean about the ownership of the cement company and more specifically about Cemex’s involvement.

“I don’t share that but I understand it.

“What the directors are seeking to do is inject capital into the company, which will ensure that Cemex will not be able, even if it cornered the entire amount, to raise capital that will take them into control of TCL.”

When it was pointed out to Espinet that he was responding to a question on the impact of the proposed rights issue and not the removal of the 20 per cent cap, Espinet said: “To answer your question very clearly, it opens the door for anybody to take control of the company. If you don’t have a restriction then anybody can do that.”

The Business Guardian asked Espinet to clarify his statement that the removal of the 20 per cent cap opened the door to anyone taking control of TCL, in the context of Cemex, which owns a 20 per cent stake in TCL, having the greatest interest in and capacity to take control of TCL.

He said: “This is just my opinion, because I have no right to be making a determination about what Cemex’s objectives are, but I would say that Cemex is a worldwide manufacturer of cement. If I were a manufacturer of anything and I had an opportunity to expand my operations into a new market, I would certainly look at it with an intention of using that opportunity.

“My opinion is that it is unlikely that they are here to put money in the stock exchange and go.

“More so, we have invited them to bring into this company management inputs in technology and marketing that we feel are critical to the restructuring.”

According to TCL’s articles of association, the removal of the 20 per cent cap on share ownership requires the vote of 75 per cent of shareholders at a special meeting.

Back in 2002, a similar attempt to remove the 20 per cent cap was voted down by TCL shareholders as it was felt 12 years ago that the approval of such a vote would have been the prelude to a takeover of the company by Cemex.

Cemex is TCL’s largest single shareholder with a 20 per cent stake in the company. TCL’s other major shareholders are Republic Bank Bank with 11.06 per cent, the National Insurance Board with 10.16 per cent and a company named Baleno Holdings, of which very little is known, with 8.21 per cent.

Espinet said TCL is the only company on the local stock exchange that has a restriction on its share ownership. Such restrictions are frowned upon, the TCL chairman said, because of problems that result in raising capital.

He said it was his understanding that the reason TCL’s lenders made the removal of the 20 per cent cap a condition of the restructuring of the company’s US$300 million ($1.92 billion) debt was because “they saw it as a restriction to the company’s accumulation of capital. The cap is a hindrance to the company getting capital freely into the system.”

TCL proposes to raise about $320 million (US$50 million) in capital as a result of a proposed rights issue.

Espinet said: “If this company could not put in the capital, we would be back to where we started. That would be a disaster that nobody would want. I have seen people writing commentaries about voting against lifting the 20 per cent cap. I hope that they will want to write that they put TCL into bankruptcy because they felt that was the right thing to do.”

He said the company’s previous CEO, Rollin Bertrand, had written a dissertation on the benefits of the 20 per cent cap “but none of his arguments concerned the preservation of shareholder value.”

Espinet noted that individuals and institutions invest money in companies based on an assumption that they will get a return on their investment and that the operations of the company will add value to their investment.

“If you want to sell me on social conscience and a number of other things, then you need to address another forum. Perhaps you need to get into politics,” said the TCL chairman, adding that a pragmatic investment outlook would dictate a concentration on the performance of the company.

TCL has not paid a dividend to its shareholders since 2007. Those shareholders saw the value of their shares decline to as low as $0.95 under Bertrand’s stewardship.

Espinet also noted that TCL under Bertrand was unable to pay monies owed to its lenders and the backpay decision of the Industrial Court at the same time.

Bertrand was terminated as the group CEO of TCL and its subsidiaries by letter dated September 22, 2014, following a review of his performance by the board headed by Espinet.

Espinet was elected as chairman of TCL at a board meeting immediately following a special (compulsory) meeting of shareholders of the company on August 19, 2014.

Just prior to the special (compulsory) meeting, Bertrand, Andy Bhajan, Brian Young, Leonard Nurse, Carlos Hee Houng and Bevon Francis submitted their resignations as directors of the company.

That meeting elected Espinet, Alison Lewis, Chris Dehring, Michael Hamel-Smith, Francisco Aguillera, Carlos Palero and Nigel Edwards. Those directors joined Alejandro Ramirez, Jean Michel Allard and Wayne Yip Choy on the board.

Explaining TCL’s previous reluctance to engage some of the criticisms of the company’s plan, Espinet said TCL has been very cautious about the information it puts out “because many of the sensitive discussions that are taking place cannot be made known as they will all have a substantial impact on the company and therefore there is a requirement for proper disclosure.”

The company’s reluctance to speak during these sensitive negotiations—mostly with its lenders at this time—“has left a void and that void is being filled by several people who may have their own agendas to fill.”

“TCL restructuring groundbreaking”

Espinet sees the initial restructuring of TCL as being a “complex undertaking” that is “breaking ground” with many dimensions for which there is not much precedent in T&T.

He has previously said that for TCL to survive, all of its major stakeholders will be required to give up something for the long-term benefit of the company.

The all-encompassing restructuring, he said, has three main pillars, affecting the employees, the lenders and the shareholders:

• Employees - An agreement, signed in December, with the company’s unionised employees, through their representative union, the Oilfields Workers’ Trade Union, which involved a $150 million settlement of wage increases and backpay from 2009 to the end of 2014. Some $68 million of the settlement was paid three days before last Christmas. Workers will receive shares in the company in lieu of another portion of settlement and some of it has been deferred.

• Lenders - An agreement with the TCL’s lenders that Espinet expects would lead to a debt-repayment schedule that is more favourable to the company, which he said would result in a more favourable average cost of borrowing. Having restructured the company’s balance sheet, TCL plans to seek new financing that would allow the company “to retire our existing debt by replacing it with debt that is cheaper.”

He said the strengthening of the company’s balance sheet to allow it to retire its existing high-cost debt “is not a piein-the-sky thing like what was done in the past.” According to Espinet, what happened in the past was that “people just ran out and did that but nobody had confidence in the whole process.”

The TCL chairman was referring to the expensive and ultimately unsuccessful roadshow of six North American cities in May last year in which TCL’s former CEO, Rollin Bertrand, attempted to tap the international junk bond market for funding to refinance the group’s US$300 million debt.

• Shareholders - TCL’s shareholders will get details of their contribution to the restructuring of the company at the special meeting of the company on Monday at 5 pm at the Hilton hotel.

 

Source:
Trinidad Guardian, BG4
Thursday February 5, 2015