PanCaribbean investors shun share buy-back
Published:Wednesday | August 25, 2010 | 12:00 AM
Sabrina Gordon, Business Reporter
Pan Caribbean Financial Services Limited (PCFS) has been rebuffed in its bid to reduce its funding costs, having fallen way short in its bid to buy back 50 per cent of the more than six million preference shares issued two years ago.
Now the company is exercising its option under the terms of the rights issue, to redeem the targeted 3.16 million units two and a half years ahead of schedule.
Towards the end of last week, PCFS said it had re-acquired only about 193,100 of the PCFS 12.5% preference share units at a cost of J$38.6 million from its effort to secure the just over three million shares at a price of $200 per share plus accrued interest.
"We have formally advised holders that we would exercise our option to buy back sufficient shares to achieve the 50 per cent redemption target," Donovan Perkins, the PCFS president and chief executive officer said.
"Effectively, we will buy back pro-rata shares, valued at approximately J$594 million."
Perkins said a 90-day notice was been given to shareholders.
The company is planning to shell out some J$632 for the preference share redemption. With a capital base of $9.4 billion at
the end of the June quarter, PCFS plans to redeem the shares from its own resources.
The buy-back, PCFS officials said, is based on the coupon for the 12.5 per cent cumulative redeemable preference stock units being substantially above market yields given the decline in domestic market interest rates resulting from the Government-imposed debt swap.
Since PCFS announced the planned share repurchase, the share price has moved up by $3.63 to $203.63 per share.
At 12.5 per cent the redeemable preference shares are providing holders with a rate of return that is 3.77 points higher than the rate on Government's benchmark six months treasury bill and also above the average 12 per cent yield on domestic Government bonds under the Jamaica Debt Exchange.
Shareholders earn quarterly returns of about J$6.30 per share on the investment, dividend payments that cost PanCaribbeanjust under J$40 million per quarter or J$160 million per year.
A third dividend for 2010 was under consideration by the PCFS board, which met Tuesday.
With the buy-back of 193,100 PanCaribbean is likely to save just J$1.2 million on the next payout.
PCFS issued the prefs in 2008, raising J$1.26 billion after the month-long offer.
The funds raised from the issue were to be used to strengthen the company's capital base, while allowing flexibility for expansion of PCFS business into the commercial banking arena, which it has accomplished with PanCaribbean Bank Limited.
There were 6,321,621 PCFS preference shares prior to the buyback.
Officials of PCFS have not indicated if they will also exercise the option and right to redeem the remaining 50 per cent of the shares ahead of the original maturity date of February 2013.
"Whether we redeem the balance prior to that date is a decision to be taken by our board, and after assessing market conditions and other factors," said Perkins.
Until such a decision, the remaining three million plus will continue to be traded on the stock market.