Dec 2006 Financial News

J'can blue chip company seeking US$50 m to make overseas acquisition?

Dec 06, 2006

Speculation is rife in the financial market that a major Jamaican blue chip company listed on the Jamaica Stock Exchange (JSE) is seeking US$50 million in order to buy an overseas company.

However, First Caribbean International Bank (FCIB), the underwriter of the transaction, has stated that the move is merely aimed at gauging broker reaction to interest rates.

A term sheet circulated this week reads, "Issuer: Large Jamaica Blue Chip company, listed on the Jamaica Stock Exchange. The name of the company and full financial details on the company and the transaction will be submitted to investors who have expressed a strong indicative interest."

The document adds, "Use of proceeds: The proceeds of the financing facility will be used by the issuer to finance the acquisition of an overseas-based company, operating in its core area of business, as part of its expansion strategy."

When contacted, FCIB's initial response was, "nothing like that". A manager in the FCIB treasury department, who did not wish to be named, vehemently denied that such a document was even circulated.

However, when the details of the document were read to him, his story changed. "All the information in the document is false. We were just conducting market intelligence to see what interest rates brokers would accept," he said.

The term sheet offered a rate "fixed at six months LIBOR plus 2.20% (current indicative 7.50%) at the time of draw down, subject to final market conditions.

The FCIB treasurer then stated, "You have to be creative to get information out of the brokers, that is why we wrote the term sheet in that manner without giving any names."

The document, which the treasurer said, "is a prop done every week", is to "help the bank build its yield curve. We have to access broker appetite and build our yield curve based on where the market is at".

Industry players, speaking anonymously, mooted the identity of the likely candidate and FCIB's motives. "I could see FCIB itself doing a deal to acquire some of RBTT shares," said an analyst working at a listed firm. "On the face of it, that is how many companies operate - they don't like to give the market any information. But tactics like that always backfire and they end up giving away their hand."

Another broker, however, disagreed. "It would take more than US$50 million to buy out Guardian Holdings Limited's (GHL's) stake in RBTT," he said. "Plus, FCIB would more than likely go to its Bajan parent company to finance the deal."

GHL currently owns 13 per cent of RBTT, which, based on its current J$113 billion market capitalisation on the JSE, would be worth J$14.69 billion or US$222 million.

Still, the first broker suggested, "FCIB could be looking for some money here in Jamaica, some in Trinidad & Tobago and some in Barbados."

Sources in the executive suite of FCIB say that they are not seeking funds to go after RBTT and if they were, financing would not be arranged in Jamaica but in Barbados.

The specific use of the term blue chip listed company suggested to the analysts interviewed by the Business Observer that there is a small pool of likely candidates.

"Technically, a listed company can be blue chip in terms of capitalisation and a track record of 10 years of consistent profits. That narrows the list to 10 of the 41 listed stocks on the JSE," said one analyst.

Dennise Williams,
Business Observer staff reporter
The Jamaica Observer
Wednesday, December 06, 2006
http://www.jamaicaobserver.com/magazines/Business/html/20061205T210000-0500_116257_OBS_J_CAN_BLUE_CHIP_COMPANY_SEEKING_US____M_TO_MAKE_OVERSEAS_ACQUISITION_.asp