The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Cable Bahamas is again preparing to tap the Bahamian capital markets for a further $30 million in preference share financing, which will help fund the roll-out of this nation’s second mobile provider.

The BISX-listed communications provider has issued term sheets to select institutional investors and their advisers, in a bid to both whet their appetite and inform them to keep liquid capital on hand, for an offering it wants to launch in late June.

Tribune Business can reveal that the proposed $30 million issue is broken down into tranches, with investors set to be offered $20 million worth of Bahamian dollar-denominated preference shares, while the $10 million balance will be in US dollars.

The term sheets, which have been seen by this newspaper, reveal that the $20 million Series 11 tranche will be used to finance both Cable Bahamas’ operating expenses and capital investments.

“The proceeds will be used to fund the company’s capital expenditures and operating expenses, as well as to facilitate further expansion in both the Bahamian and US markets,” the Series 11 term sheet reads.

The term sheet for the $10 million US dollar tranche, to be called Series 12, states that the funds will only “be used to meet operational funding requirements”. The offering is private, and Bahamian public investors should not seek to participate.

Cable Bahamas’ latest capital call is thus intended to provide the company with financing that will be deployed to fund the roll-out of the Bahamas’ second mobile player, NewCo, whose launch is now thought to be imminent.

The Government’s Cellular Liberalisation Task Force, acting upon Prime Minister Perry Christie’s Budget speech, confirmed that it had instructed sector regulator, the Utilities Regulation and Competition Authority (URCA) to issue NewCo with its 15-year license.

Several formalities remain to be completed before the Bahamas Telecommunications Company’s (BTC) first-ever mobile competitor can start to build-out its network and launch services to the Bahamian public, which should happen on New Providence and Grand Bahama before year-end.

NewCo must cover 99 per cent of New Providence’s population, and 80 per cent of Grand Bahama’s, within three months of its launch, and reach 75 per cent of Abaco, Exuma, Eleuthera, Bimini and Andros in six months.

Cable Bahamas will have a 48.25 per cent equity stake in NewCo, coupled with Board and management control, The $30 million preference share issue will likely help cover its share of NewCo’s $62.5 million spectrum fee and infrastructure build-out investment.

Cable Bahamas executives declined to comment when contacted on the preference share offering by Tribune Business yesterday. This newspaper understands that company is working to finalise the $30 million issue’s details, and is still working to obtain exchange control approval from the Central Bank of the Bahamas, which is required for US dollar component.

However, the two term sheets show that both preference share tranches are due to be redeemed after 10 years.

Investors in the $20 million Bahamian component will be paid a 6.25 per cent interest dividend semi-annually, with the return on the US dollar tranche likely to be slightly higher at between 7.25-7.5 per cent.

The term sheet says the preference share issue is due to launch on June 27, and close on July 8, but Tribune Business understands these dates may be subject to slight changes.

Cable Bahamas’ latest capital raising comes just over one month after it revealed a $14.371 million net loss for 2015, driven by a one-off $20.5 million accounting ‘write down’ associated with its 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 a ‘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.

Cable Bahamas 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.

The company is effectively investing for projected future gains and shareholder returns tomorrow, and these have yet to materialise.

In the meantime, increased payments associated with the new debt financing are weighing on Cable Bahamas’ financial performance. The key now is for the company to execute, and deliver the expected profits increase and returns from these investments.

The increased preference share dividends continued to weigh on Cable Bahamas during the 2016 first quarter, during which net income fell by 49.3 per cent year-over-year - from $3.044 million in 2015 to $1.53 million now.

Almost $1 million of this decline stemmed from the increased preference share dividends, which more offset the slight growth in Cable Bahamas’ gross income to $14.685 million.

Should the latest $30 million preference share issue be fully subscribed, Cable Bahamas will have almost $233 million in these debt securities on its balance sheet, and some are questioning how much more it can rely on debt financing.

Sir Franklyn Wilson recently suggested that Cable Bahamas had “reached its peak” in terms of debt financing through preference shares, saying: “How much more preference shares can they take on their balance sheet?

“They’ll need equity at some point. They’ll need common, ordinary shares. You can’t keep financing deals on debt.”