The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Sir Franklyn Wilson has urged Cable Bahamas to “meet the highest standards of transparency and accountability” following the issuance of its new mobile licence.

The Arawak Homes chairman told Tribune Business that the BISX-listed communications provider was now “a terribly important company for the Bahamas”, given both the nature and scale of its operations, and how dependent investors are on its success.

He added that “to whom much is given, much is expected”, and that he wanted Cable Bahamas’ Board of Directors and management to fully “understand the awesome responsibility” they have.

Tribune Business spoke to Sir Franklyn after being informed that he had circulated a ‘discussion paper’ on Cable Bahamas to members of the business and financial services community, taking issue with several aspects of its operations.

Multiple financial services and capital markets contacts confirmed they either had seen the ‘paper’, or possessed a copy, adding that it expressed particular concern with the $200 million-plus preference share debt on Cable Bahamas’ balance sheet.

“They’re fully leveraged; that was his main contention,” one source, speaking on condition of anonymity, said of Sir Franklyn’s ‘paper’. “And that they didn’t do all their universal coverage for the existing licences [cable TV]. He has a point there.”

However, despite repeated requests by Tribune Business, no contact has been able to provide this newspaper with a copy, with some fearing they may be identified as ‘the source’.

Several persons, though, have questioned the motivations behind Sir Franklyn’s ‘discussion’ paper, and whether there is an “agenda” behind it - especially given the timing of its release.

For it coincided with the June 30 issuance of the licence for NewCo2015 Ltd, the nation’s second mobile operator, in which Cable Bahamas has a 48.25 per cent equity stake, coupled with Board and management control.

Some observers are thus questioning whether Sir Franklyn’s paper was a last-ditch effort to derail the awarding of NewCo’s licence, and if he - or his companies - have any connection to the losing bidder, Virgin Mobile (Bahamas).

While the paper’s release was likely to have been too late to have any impact, Sir Franklyn denied there was any hidden agenda behind its crafting and circulation.

“It was just to try and encourage the leadership of Cable Bahamas to understand the awesome responsibility they have because of their standing in the corporate world,” he told Tribune Business.

Sir Franklyn said he had spoken to Cable Bahamas’ executives and directors over his concerns, and suggested they understood his views “more fully”.

“Cable Bahamas is a terribly important company for the Bahamas,” he added. “If you look at the records, it really has no equal in the Bahamas in terms of the number of shareholders, and diversity among the shareholders.”

Sir Franklyn said Bahamas International Securities Exchange (BISX) data showed that for 2015, Cable Bahamas was the second-most traded stock behind Commonwealth Bank, accounting for 9.6 per cent of trading volumes and 13.4 per cent of value.

While year-over-year (52 week) comparisons are made difficult by Cable Bahamas’ stock split last year, Sir Franklyn said its share price had increased by 22 per cent during the first 11 months of 2015.

The ‘next best’ performers were Commonwealth Brewery and his own FOCOL Holdings, with price appreciations of 11 per cent and 10 per cent, respectively.

“When a company has that type of performance, it’s a terribly important company,” Sir Franklyn told Tribune Business.

“And it’s terribly, terribly important that such a company conducts itself in such a way that it meets the highest standards of transparency and accountability and the like.

“That company has to succeed because it’s so important to the country. A tonne of people’s pension fund monies are invested in it.”

Apart from being the dominant player in the Bahamas’ TV and broadband Internet markets, Cable Bahamas has also gained an estimated 30 per cent of the fixed-line voice business since entering that segment.

Its successful bid for the mobile licence means it will become a ‘quad play’ provider in late September/early October 2016, thereby making it arguably the most important provider in the communications industry - a sector vital to the Bahamas’ economic success.

“This is a tremendous concentration of power,” Sir Franklyn told Tribune Business. “When you have that concentration of power and interest, to whom much is given, much is expected.

“You have to perform at very high levels. I’ve had conversations with senior executives at Cable to drive home this point; you’ve got to perform at a very high level. They have to behave a certain way and meet very high expectations.

“My sense from talking to some of the leaders there is that they now understand this point more fully. Going forward, let’s see if there’s a change in the way they deport themselves.”

Sir Franklyn then criticised the lack of explanation for Cable Bahamas’ $14.371 million net loss in 2015, saying the company was “not telling the public what that’s about”.

However, Tribune Business reported in early May 2016 that the loss was driven by a one-off $20.5 million accounting ‘write down’ associated with Cable Bahamas’ US operations.

The BISX-listed communications unveiled a more than-$25 million year-over-year swing ‘into the red’ for the 12 months to end-December 2015, as ‘goodwill impairment’ at its recently-acquired Florida business came into play.

That ‘one-off’ $20.499 million charge accounted for around 80 per cent of the ‘bottom line’ reversal, with the other decisive factor being a 63.3 per cent year-over-year increase in preference share dividends.

With some $189 million worth of preference share debt issued over the past two years, Cable Bahamas’ dividend payments to these investors rose by more than $4.2 million - from $6.696 million in 2014 to $10.936 million last year.

The loss resulted from the fact that Cable Bahamas is effectively investing for projected future gains and shareholder returns tomorrow, and these have yet to materialise.

The company has sharply increased the amount of debt (bank financing and preference shares) on its balance sheet to fund both its $100 million worth of US acquisitions, and their expansion, and its mobile growth opportunity at home.

Cable Bahamas acknowledged in the offering memorandum for its latest $50 million preference share issue that costs associated with recent debt capital raisings “have dragged on profitability and cash flow”, impacted its short-term financial performance.

The BISX-listed provider also conceded that the latest preference share issue, some $30 million of which is being raised locally, would impact its leverage or ‘gearing’ ratio.

Cable Bahamas forecast that debt-to-EBITDA would be 5.81 times’ and 4.66 times’, respectively, at year-ends 2016 and 2017. These, though, would be quickly reduced as NewCo2015 “ramped up” and debt was paid down.

One capital markets source, speaking on condition of anonymity, suggested to Tribune Business that Cable Bahamas and its Royal Fidelity advisers may have difficulty in placing the $30 million local component.

They said many institutional investors were “operating at their limits”, both in terms of their exposure to Cable Bahamas and preference shares generally, given the company’s capital-raising activities in the past two years.

“A lot of the institutions won’t subscribe; they don’t have the capacity,” the source said. “Whether it’s 10 per cent or 15 per cent, they’re operating at their limits. Cable Bahamas has to stack on a lot of debt, and the revenues come at the back end.”