May 2011 Financial News

GHL's new share option plan aimed at increasing share price by at least 24 per cent

May 11, 2011

GUARDIAN Holdings Limited's (GHL's) has devised a Performance Option Plan (POP) for the group's executive management that could give them nearly eight per cent of the shares in the company. But not before the share price rises by at least 24 per cent.

The 18 million new options that are on offer represent 7.76 per cent of the 231.9 million issued share capital of the company. As at December 2010, shareholders' equity in the company stood at TT$3 billion.

The POP offer follows a significant change in ownership structure in 2010, when the International Finance Corporation purchased a 13 per cent ownership stake in GHL by converting an existing US$50-million loan into common equity. GHL issued 29.7 million common shares at the time at $16 per share.

With the issue of more common shares, dilution — which can mean a shift in ownership percentage, voting control, earnings per share, or the value of individual shares — can occur. However, group chairman, Arthur Lok Jack noted in a statement announcing the option, that given the 'performance hurdle' that executives will have to overcome, the incidence of dilution will be reduced, at least as it relates to share prices.

"While dilution may occur, it is only after the actual share price appreciates at a greater rate than the POP exercise growth rate," he said. "If actual, annual share price appreciation exceeds the annual POP growth rate, shareholders should want to reward their executives for their performance," he added.

Lok Jack believes the current GHL share price, at TT$14.50 on the Trinidad and Tobago Stock Exchange and $166 on the Jamaica Stock Exchange as of May 9, 2011, undervalues the company. Therefore, the option has an introductory exercise base price of TT$18 — 24 per cent higher than the current trading price.

"This means that any improvement in the current share price up to TT$18 will first benefit existing shareholders, as POP options cannot be exercised until this floor has been penetrated," Lok Jack said.

The POP forms part of the Economic Value Added plan which the group has undertaken. The annual improvement plan will see a 12 per cent growth in the exercise price or strike price, the price at which the executive can 'exercise' his/ her 'option' to purchase shares in the company. With the exercise price being a moving target, the idea is that executive management will be incentivised to ensure consistent growth in the value of the stock before they can share in the increased value of the shares. POP options will not be 'in the money' — when the actual market price is greater than the exercise price — until the minimum growth rate is achieved.

Lok Jack said the POP "provides strong incentive for the senior management to improve the economic performance of the company and thereby drive GHL's share price". If the share price has increased to TT$18 by the time the option is granted, the growth rate for the stock will be calculated at seven per cent and held constant for the life of the option. If it is below the TT$18 however, the growth rate will be calculated at 12 per cent, giving executives further incentives to ensure the stock value increases to TT$18 before the options are granted.

"The POP will further strengthen and align the interests of managers and shareholders towards the growth in the GHL share price and enterprise value," Lok Jack reasoned.

Stock options are generally given to directors of companies as compensation or incentives. In this case, it gives the GHL executive the right, but not the obligation, to buy the stock at an agreed-upon price within a certain period or on a specific date. Under the POP, the exercise period is eight years after a two-year vesting period. At the introduction of the plan, 14 executives across the group qualified for the option.

Efforts to contact GHL's management regarding the projected uses of the amount raised through the option offer was unsuccessful up to press time. However, Lok Jack has indicated an interest in acquisitions in the insurance market and other strategic investment initiatives such as the Eastern Caribbean Gas Pipeline and the Pointe Simon Waterfront project in Martinique.

GHL is the parent company for an integrated financial services group which focus on life, health, property and casualty insurance, pensions and asset management. The company currently operates across the English and Dutch Caribbean with interests in the United Kingdom.

BO


Source:
BY ALICIA ROACHE
roachea@jamaicaobserver.com
Business reporter
Jamaica Observer
Wednesday May 11, 2011

http://www.jamaicaobserver.com/business/GHL-s-new-share-option-plan_8778652#ixzz1M3iun1Ay