The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A former top Securities Commission official yesterday said he would be “shocked” if the regulator approved the Bahamas Petroleum Company’s (BPC) planned Bahamian Depository Receipt (BDR) share offering, on the grounds that the company’s primary listing was not on a top-tier stock exchange.

Hillary Deveaux, the Securities Commission’s former executive director, said 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 yesterday told Tribune Business that BPC’s primary listing - on London’s Alternative Investment Market (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 the Bahamas International Securities Exchange’s (BISX) ‘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.

“I’d be shocked if the Securities Commission were to approve this,” Mr Deveaux told Tribune Business. “It’s [BPC] not on a regulated exchange, it’s on the AIM. AIM deals primarily with growth not regulation.

“I’m a little bit disappointed they’re taking this route, and I’d be a little bit disappointed if the Securities Commission were to register this BDR.”

He added: “It would be different if BPC were listing [its main shares] on BISX. The criteria established by the Securities Commission is that the company has to be on a well-regulated exchange, and this junior market is focused more on growth than regulation.”

Simon Potter, BPC’s chief executive, declined to comment when contacted by Tribune Business yesterday.

But a source close to the company described Mr Deveaux’s assertion that it was not heavily regulated as “rather strange”, pointing out that it had to comply with numerous AIM listing, governance and financial reporting/disclosure requirements.

The source noted that BPC’s 2012 annual report detailed the company’s level of compliance with the likes of the UK Corporate Governance Code, and the one used by the Quoted Companies Alliance.

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

He explained that the Commission’s new, modified approach was that if BPC met “additional reporting requirements” that brought it into line with what was required of Bahamian public companies, the regulator would be willing to work with BPC.

The only two BDR issues completed to-date have been for Kerzner International and Consolidated Water, both of which met the ‘criteria’ Mr Deveaux referred to, as they were listed on the NYSE and Nasdaq markets, respectively.

Referring to the regime that previously existed for BDR offerings, Mr Anderson told Tribune Business: “That was put in place at a time when they were thinking they would have BDRs coming to market fairly frequently, and needed rules.

“I see no reason why, as a starting point, a BDR will not meet most of these requirements.”

He added that the Securities Commission’s revised approach was to treat BDR’s on “a case by case basis”, and the regulator was looking at BPC as a new listing.

Pointing out that the BDR rules worked out previously between the Securities Commission and BISX were not put into legislation or regulation, and served more as “market-related rules and guidelines”, Mr Anderson said the main goal was to ensure any issuer met reporting requirements to Bahamian investors.

And the RoyalFidelity chief said the BDR’s main purpose was to enable a company to avoid having two publicly-listed entities, and all the cost and compliance burdens that went with that.

The BDR is a Bahamian derivative product that allows local investors to invest in the stocks of international companies based in this nation, with prices inextricably linked to those of the main board shares on its primary exchange.

Still, Mr Deveaux suggested that a BDR offering by BPC would be “far-fetched”, describing the company as a “penny stock”.

And he expressed concern that Bahamian investors might not understand the true nature of an investment in BPC, and the nature of the risk they were taking.

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.

Still, Mr Deveaux told Tribune Business: “The Securities Commission should be operating in the interests of the investing public......

“To come out with a BDR is detrimental to the less informed or ignorant Bahamian investor. Just because the Government is going to come up with state-of-the-art or best practices in the industry doesn’t mean they should offer this to the public.”

This was countered by Mr Anderson, who said: “At this point, where the company is looking to give additional participation to investors, this is a good opportunity for Bahamians to invest.”