The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Grand Bahama Power Company’s (GBPC) successful $32 million preference share issue will eliminate a $19.205 million deficit that previously existed between its current assets and liabilities, with its net income performance already showing the benefits of its revised tariff structure.

Financial statements for the 2012 third quarter show just why the private placement, which was oversubscribed by 35 per cent in raising over $43 million, was required to bring GB Power’s balance sheet ‘back into balance’.

The monopoly electricity provider’s balance sheet at end-September 2012 showed that total current assets of $67.039 million were exceeded by $86.244 million in current liabilities.

But some 67.8 per cent, or $58.432 million of the latter amount related to ‘amounts due to related parties’ - the advances GB Power’s majority shareholder, Emera, had made to finance construction of the former’s new $77 million West Sunrise Plant.

The net $30.875 million raised from the preference share issue will be used solely to repay Emera for those advances, which were generated largely through an unsecured $56 million US dollar loan from Scotiabank (Bahamas).

As a result, GB Power will be brought back into current positive net worth - eliminating the current solvency deficiency that previously existed when current assets were exceeded by current liabilities.

There is nothing to suggest that this situation caused any problems for GB Power or ita ability to operate and pay creditors, given that its total assets (consisting mainly of property, plant and equipment) were always comfortably above total liabilities.

Indeed, the offer document for the GB Power issue noted the build-up in current and total liabilities during 2011, anticipating that these would be reduced by the preference share issue.

“On the liability side of its books, GBPC’s total liabilities also increased significantly over the prior full year by 41 per cent or $51 million, almost exclusively due to an increase in amounts due to related parties representing Emera Caribbean’s shareholder loans to GBPC for financing the West Sunrise plant construction, while awaiting receipt of the external debt financing and internal equity contributions designated for that project,”the offering document said.

“This is reflected in GBPC’s current liabilities, which jumped by B$53.8 million year-over-year [for 2011].”

And the document added: “Excluding the related party liabilities, GBPC’s activity position remains favourable with a collection period of 43 days and a payment period of 63 days, thus providing support for its working capital position.

“The interim financials indicate an improving liquidity and activity position relative to 2011, despite the continued existence of the Emera Caribbean related party liability, as indicated by the higher current ratio and stable cash cycle.”

The offering document also predicted that the addition of the $32 million preference share financing would boost its net shareholder equity from $57.477 million at end-August 2012 to $96.284 million.

Meanwhile, the promised returns from GB Power’s new tariff structure and improved fuel efficiencies (savings) already seem to be materialising.

For the 2012 third quarter, the utility monopoly enjoyed a more than $3.3 million positive swing into the black, as a $641,000 loss for the same period the prior year became a $2.276 million net profit.

Wiping out a net loss for the 2012 first half, the third quarter performance converted a $400,000 net loss for the first nine months of 2011 into a $1.624 million net profit this time around.

While top line revenues were slightly down for the first nine months, and declined more sharply for the full-year, GB Power saw an even bigger decrease in fuel costs.

All this indicates that GB Power’s turnaround strategy appears to be moving according to plan.

The preference share document said: “The August 2012 year-to-date unaudited interim financials indicated a return to profitability based on GBPC’s cost management initiatives and new rate structure taking effect. “

Referring to “continued revenue strength and improved margins”, the document added: “We also note that GBPC’s new return-based rate structure went into effect on July 1, 2012, and this is expected to be the main driver behind GBPC’s improved financial performance going forward.”