PCFS plans J$632m share redemption
Published:Wednesday | June 23, 2010 | 12:00 AM
Sabrina Gordon, Business Reporter
Pan Caribbean Financial Services Limited (PCFS) has notified the market that in two weeks, it will move to redeem more than three million preference shares, or exactly half the stock units issued over two years ago when the company needed capital to launch its new commercial bank.
Officially, the company said it was taking advantage of current market conditions, but on Tuesday, Pan Caribbean president and chief executive officer Donovan Perkins also cited the downward pressure on interest rates for the decision.
At a coupon of 12.5 per cent, the prefs pay higher returns than the expected average 12 per cent yield on domestic government bonds swapped under the Jamaica Debt Exchange (JDX) programme, and more than three points ahead of Treasury bill rates now at 9.26 per cent yield on the bench-mark six-month bill.
Current yields
"With the decline in interest rates resulting from the JDX, the pref shares are at interest rates above our current reinvestment yields," Perkins told Wednesday Business.
"Effectively, we have liabilities at rates higher than we are able to invest at currently."
On July 9, Pan Caribbean will redeem 3,160,810 shares of the 6.32 million units in issue at a cost of J$632 million, plus accrued, interest.
The shares are being repurchased at current market price of $200 per unit, the same price at which the stock was issued. The offer remains open for a month to August 9, but Pan Caribbean says it will buy only the targeted 3.16 million units in the period.
The PCFS 12.5 per cent shares, which are the most expensive of the preference listings on the Jamaica Stock Exchange, have barely traded since their March 2008 debut. Holders of the stock earn returns from dividends paid quarterly at J$6.15 to J$6.30 per share, amounting to J$39 million per period.
Maximum volume
Within the last year, the maximum volume of PCFS prefs to change ownership was 93,750 units in January when the stock gained 81 cents, moving the price to J$199.81 from J$199. The stock has traded only 10 times in the past year, usually in volumes as small as 500 units, falling as low as J$190 in the period.
Other prefs trade at 35 cents to J$25.
In 2008, Pan Caribbean went to the market to raise some $2 billion in equity capital with the issue of the 12.5 per cent cumulative redeemable preference stock units, but only raised J$1.26 billion. Pan Caribbean later said it had revised the target to a lower figure so as not to add too much leverage to the Sagicor family of companies to which it belongs.
The remaining prefs, which have a three-year life, are to be redeemed in about nine months.
Pan Caribbean, a J$70 billion company by assets, including operating cash of J$1.9 billion, said a specific account had been established at the Jamaica Central Securities Depository for the purpose of acquiring the stock units.
"Pan Caribbean has sufficient liquidity to redeem the shares from its own resources," said Perkins.