Something stinks in Trinidad

TCement_280x150Something stinks in the land of calypso and it has nothing to do with football. Trinidad Cement offered rights to purchase shares in the company early this year but only some shareholders were invited. No one has done anything about this stinking thing. One investors in the twin island state made a stink about the issue but not really about the salient point.
They are of the view that with Cemex controlling a large block of the shares by way of the rights issue made it tantamount to a takeover, hence they ought to have made an offer to the other shareholders to buy their shares. With officially less than 50 percent of the shareholdings that seems a bit farfetched.
What is of far greater import are two issues that go to the heart of good corporate governance, equitable treatment of shareholders and proper disclosure. The first issue is that all shareholders were not treated equally as is the norm for all holders of the same class of shares.
TCL directors found it convenient to deprive shareholders who reside overseas except for a select few from participating in the offer. It is interesting that when Guardian Holdings had a rights issue it was open to all shareholders whether residing in Trinidad or not. TCL had lots of time to have prepared themselves and others for the rights.
“TCL has advised that at a meeting of the Board of Directors of TCL held on Thursday, February 26, 2015, the board confirmed a decision to offer the shares in the Rights Issue of 124,882,568 new shares in Trinidad and Tobago only, and to exclude all other jurisdictions in which TCL`s shares are listed – including Jamaica. This decision was based on the following: (1) The complexities involved in satisfying the requirements of the various regulatory bodies in all jurisdictions in which the Company is listed and its effects on the stringent timeframe for the Rights Issue, especially having regard to the fact that the condition imposed by TCL`s Lenders; and (2) the de minimis shareholding and trading activity in the other jurisdictions (including Jamaica).”
The second and even more serious concern has to do with disclosure or lack of it. One would hardly be regarded as foolish as to think that the deal was hatched to get Cemex controlling interest by the back door.
First overseas based shareholders were excluded from the issue, no shareholder was allowed to subscribe to more than their allotment and the scheme provided for Cemex to have their required holding whether the rights was successful or not by the agreement to issue added shares if the amounts from the rights did not allow them at least 35 percent ownership.
The offer document stated “If Sierra Trading has not achieved a shareholding in TCL of 35%, then subject to receiving all required approvals, including Shareholder approval, a private placement of TCL shares will be issued in favour of Sierra Trading in an amount that will permit Sierra Trading to achieve a shareholding of 35% of TCL’s outstanding shares”

Carib Cement a subsidiary of TCL

Carib Cement a subsidiary of TCL

The grave error is that the company withheld important and extremely relevant information from shareholders. In fact they got noted auditors to issue report that is questionable in one critical area for what it did not disclose that was a part of the offer document. Why did PriceWaterhouse (PW) signed off on it and leaving out one of the most critical bit of information on the profit in 2015 and thus giving great validity to the numbers is a mystery? The information would have led any reasonable reviewer to the conclusion that the group made no profit for the March quarter, the hiding of this critical information is very unfortunate. If TCL who would have been in a good position to know what the profit for the quarter was likely to be had disclose same to investors many more would probably have taken a more positive view of the company as the numbers showed a vastly better picture than was released to the investing public.
According to the offer document TCL made no profit between December and March this year and this was critically false information. Yet the company posted a huge improvement in profit in the March quarter. That is odd, so hear what PW said in their report about the financial position and forecast prepared by management of TCL. Extract from the PW report states, ”in our opinion the projection has been properly compiled on the basis of the assumptions set out in note 1 and the basis of accounting used is consistent with the accounting policies of the group.” It goes on to suggest that actual results may vary materially from forecast. That is fine for projection somewhere down the road but can’t be good for information that has already been known.
Retained earnings at December 2014 is included in the balance sheet at $64.257 million and the same figure of $64.257 million on April 1, 2015, the conclusion here is that there was no profit nor loss in the quarter and if so many would consider the price of $2.90 too high. On April 23 the TCL directors signed off on the first quarter results showing a big jump in profit to $43 million up from $11 million in 2014. Was all the profit made in March alone ahead of the rights issue document and if not, why was it not disclosed in the report? Certainly for the months or the period that they had information investors should have been provided with it and with some guidance for the rest of the months for the quarter and for the full year as well. The numbers for the quarter puts full year’s earnings around 64 cents without any savings from debt restructuring that makes the $2.90 rights issue price extremely cheap, few would have known what the numbers were likely to be based on the silence of the company’s “dumb” directors.
Why hasn’t the FSC of Trinidad and the stock exchanges on which the stock is listed not taken up the matter in the interest of the investing public? Caribbean investors deserve far better treatment than this shabby approach.

Rights for TCL shareholders

TCement_280x150Shareholders in Trinidad Cement will be offered additional shares in the company by way of a rights Issue of 124,882,568 new shares, to be priced at TT$2.90 per share. Shareholders will be offered the right to purchase one new share for every two shares held. The stock last traded at $2.70 on Thursday on the Trinidad Stock exchange. The issue if fully taken up will raise $362,159,447 for the company.
The issue will be underwritten by up to US$45 million by Sierra Trading an affiliate of Cemex SAB to ensure that the minimum funding targeted of US50 is met. In order to have the underwriting of that magnitude the company needed to and got permission of shares at an extraordinary meeting to lift a 20 percent shareholding limitation, in case the shareholders did not subscribed to enough of the rights they are entitled to.
Sierra Trading will take up the rights due them on their 20 percent ownership of the group. The agreement stipulates that if after the rights issue the underwriting company does not get up to 35 percent of the shares of TCL then there will be a private placement of TCL shares to bring the holdings to 35 percent of TCL issued shares.

Carib Cement One of the groups subsidiaries

Carib Cement One of the groups subsidiaries

For the nine months to September, profit for the group’s shareholders amounted to $60 million versus $69 million in 2013. The 2014 figures reflect cost of nearly $29 million associated with an attempt at restructuring the heavy debt the company has, but the 2013 results benefited from a tax credit of $27 million.
TCL is loaded down with debt at relatively high interest rates. The debt at the end of 2013 was just under TT$2 billion all of which has been switched to current liabilities as a result of the default occasioned by the decision of the company to suspend payment on the debt pending negotiation of the terms. Equity stood at TT$570 million at the end of September, well below the debt. All amounts are in TT dollars. If the fresh capital is raised equity will reach around $1 billion and loans should decline to around $1.3 billion by the end of 2015 or close to a one for one relationship between debt and equity. The improved capital profile of the company should allow them to finance the remaining debt at a more advantageous cost than currently.
The rights is not badly priced as the stock an IC Insider BUY RATED seal of approval is severely undervalued on the TTSE. Investors will of course take into consideration negative economic development in Trinidad its main market with the fall in oil prices world wide an its impact on revenues for the country.