The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Petroleum Company’s (BPC) planned share offering to local investors has been delayed for over a year by the wait for the Government to give its consent for exchange control approval, Tribune Business can reveal.

Simon Potter, BPC’s chief executive, declined to comment on the issue when questioned by this newspaper, but sources familiar with the situation said the company’s application to the Central Bank of the Bahamas had been submitted around 12 months ago.

While the Central Bank has nominal authority on this issue, the real power lies with the Government, which has to give the ‘nod’ on applications by major investors for exchange control approval.

Such approvals are sometimes long in coming, as Cable Bahamas recently found out in seeking approval for its $100 million worth of US deals, and Tribune Business understands that, in similar fashion, BPC’s application has been sitting on the Government’s desk, not moving.

Exchange control approval is a vital prerequisite for BPC to launch its long-promised Bahamian Depository Receipt (BDR) share offering.

This is because the proceeds raised from the offering to Bahamian investors will have to be converted into UK sterling to purchase BPC shares listed on London’s Alternative Investment Market (AIM). These will then be backed by the BDR derivatives, listed and traded on the Bahamas International Securities Exchange (BISX).

Mr Potter, though, did reiterate BPC’s intention to proceed with its share offering as a way to give Bahamians an opportunity to buy into, at the start-up stage, an investment that could ultimately be enormously profitable.

Confirming that the oil exploration firm was in discussions with BISX and the regulators over the proposed offering, Mr Potter acknowledged that BPC as an investment was “not for everyone”.

Pointing out that an investment in the company carried “technical” as well as the usual ‘financial’ risks, Mr Potter said that because there were no commercial quantities of oil yet confirmed in Bahamian waters, BPC was a high reward/high risk offering.

But, while “success isn’t measured by take-up”, Mr Potter expressed hope there would be enough Bahamian investor interest to indicate “a momentum of support” for BPC and its oil exploration activities.

“Can I sit here and tell you when it will occur? No, but in terms of our prospectus, it’s in at the Securities Commission,” Mr Potter told Tribune Business, in response to queries over when the BDR issue might come to market.

“They’ve [the Commission] got their job to do, and we’re answering their questions. There are some considerations, and we’re listening to suggestions from BISX, the Central Bank and the Securities Commission.

“The company has its objectives, and these commissions have their statutes and rules. We’re listening to their suggestions.”

Added spice to BPC’s relationship with the regulators has come through Hillary Deveaux’s appointment as the Securities Commission’s acting executive director.

Mr Deveaux suggested as recently as late July, just prior to his appointment, that he would be “shocked” if the Securities Commission approved BPC’s share offering, on the grounds that the company’s primary listing was not on a top-tier stock exchange.

He explained that the oil explorer’s planned share issue to Bahamian investors did not meet the rules criteria he had left in place for such BDR issues.

This required companies, which decided to offer BDR shares to Bahamian institutional and retail investors, to have a primary listing on the world’s top stock markets - such as the New York Stock Exchange (NYSE) or London Stock Exchange (LSE).

This was designed to ensure BDR issuers complied with the necessary reporting and governance requirements for public companies, but Mr Deveaux argued that BPC’s primary listing - on AIM - did not meet the previously set criteria.

He described AIM, the UK’s junior stock market for incubator and developing companies, as one more focused on growth rather than regulation of its listed companies.

As a result, Mr Deveaux said BPC would be better advised to seek a listing on BISX’s ‘main board’.

And, failing to do that, he suggested Bahamians should go through the investment currency market and Central Bank exchange control regime, and buy shares on the London market if they wished to invest in AIM.

Mr Potter did not comment on BPC’s relationship with the Securities Commission or whether Mr Deveaux’s appointment may impact the BDR issue’s approval.

Sources close to BPC had previously described Mr Deveaux’s comments as “rather strange”, pointing out that it had to comply with numerous AIM listing, governance and financial reporting/disclosure requirements.

And Michael Anderson, president of RoyalFidelity Merchant Bank & Trust, which is acting as BPC’s financial adviser and placement agent on the BDR issue, said earlier that the rules referred to by Mr Deveaux had “changed quite substantially” since he left the Securities Commission.

Given that BPC has yet to prove beyond doubt that commercial quantities of oil exist in Bahamian waters, investors will effectively be speculating on the prospects of a ‘black gold’ discovery coming true.

In essence, the BPC BDRs are a venture capital investment, or ‘high risk, high reward’ play. There is a high risk that the company might find nothing, but by participating in equity ownership at the ground level, Bahamian investors would position themselves for potentially tremendous upside and wealth creation.

Mr Potter acknowledged this, telling Tribune Business: “An investment in a company like BPC is not for everyone, and the reason I say that is not only because there are the usual financial risks that occur with any investment, but for expansion companies there are technical risks that need to be understood and appreciated.

“Therefore, there are investment risks at either end of the spectrum. It can be a spectacular success, but if we don’t turn up any oil, we will have to get our thinking caps on.”

The BPC chief executive indicated there were ways to address any regulatory concerns about how the BDR issue would be pitched, agreeing that the offering had to be marketed “sensitively”.

“I’d like for there to be a large take-up where clearly there’s a momentum in support of the company and its objectives in exploring for oil in the Bahamas,” Mr Potter added.