The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Arawak Cay port’s tariff rates are expected to increase by 2.5 per cent per year from 2016 onwards, it has been revealed, matching the Bahamas’ long-term inflation rate.

The disclosure, contained in the documents supporting Arawak Port Development Company’s (APD) $21 million private preference share offering, is likely to increase concern among major importers who have already seen an increase in shipping costs related to the new port’s charges.

This has ultimately resulted in some consumer price increases, as companies have been unable to absorb the fee rises 100 per cent themselves.

The private placement memorandum, a copy of which has been seen by Tribune Business, also indicates that the container port’s long-awaited tariff model has been developed.

This is designed to ensure the Nassau Container Port, which APD operates, generates the targeted 10 per cent internal rate of return (IRR), but the model - and methodology used - has yet to be made public.

“All tariff rates are expected to increase by 2.5 per cent per annum from 2016 onward,” the APD offering document said.

“The assumption is based on the projected long-term inflation in the Bahamas. A tariff-setting model has been developed to be used periodically to re-set rates such that the port achieves a predetermined rate of return in line with the MOU.”

That abbreviation refers to the Memorandum of Understanding (MoU) between the Government and the shipping industry companies, which provided the foundation for both APD’s creation and the Nassau Container Port’s development.

The document, which is for a private placement, meaning the general Bahamian public should not seek to get involved and apply for shares, also discloses that APD is projecting 2 per cent average annual growth in container throughput volumes.

“With the exception of bulk, which is expected to decline in 2014, the volume forecasts assume a long-term growth rate of 2 per cent per annum,” APD said.

“Management’s estimate for a long-term growth rate of 2 per cent per annum is based on the long-term projected Gross Domestic Product (GDP) growth for the Bahamas.”

The $21 million preference share issue, priced at 5.5 per cent, will be used to pay out APD’s existing $43 million bridge loan facility from the Royal Bank of Canada.

That financed the port’s construction, which is now largely completed, and the balance of the $43 million will largely be covered by a new, $20 million long-term loan from Royal Bank.

The APD placement document disclosed: “RBC has agreed to advance a new $20 million commercial loan with a negative pledge at an interest rate of Nassau Prime plus 0.25 per cent over a five-year term, amortised over 12 years, to partially replace the bridge loan.”

When it comes to the $21 million preference share issue, APD is proposing a staggered principal repayment schedule.

Between the fifth and 12th anniversaries of the offering’s closing, the BISX-listed company will make $750,000 annually in principal repayments. Between the 13th and 19th anniversaries, the annual principal repayments will increase to $2 million, with the remaining $1 million balance repaid at the 20-year maturity date.

The $21 million issue, when closed, will be listed on the Bahamas International Securities Exchange (BISX), according to the document.

Elsewhere, APD is projecting that its operating costs - apart from finance, leases and taxes- will remain in line with inflation, growing at 2.5 per cent per annum.

While no allowance has been made for Value-Added Tax (VAT) in APD’s operating projections, the company is forecasting that its annual capital expenditure spend will start running at the equivalent of 5 per cent of revenue from its next financial year.

Comparisons are difficult when it comes to APD’s financial performance, as the 12 months to end-June 2013 represent its first full year of operations.

But having the New Providence exclusivity (monopoly) on container port operations has nor hurt, as its unaudited performance for the nine months to end-March 2013 shows APD has transformed a $2.905 million net loss from the year before into a $3.689 million profit.

Earnings per share, according to the accounts, stood at $0.74, while operating income was a positive $5.27 million compared to a $2.844 million loss in the nine months to end-March 2012.

The improvement was based on APD’s $18.862 million in total revenues, and $13.592 million in total expenses.

For the 2013 full year, APD is projecting net income of $3.661 million on total revenues of $23.971 million, with earnings before taxation, interest, depreciation and amortisation (EBITDA) standing at $7.961 million.

The BISX-listed company is projecting a steady, rather than spectacular, performance through 2014 and 2015, with net income forecast to be at $3.592 million and $3.467 million respectively.

And, in a boost to the Bahamian public investors who hold 20 per cent of its shares, APD is planning to start dividend payments after its 2013 financial year closes in June.

“For the year ended June 30, 2013, the prospective financial information assumes approximately a 40 per cent common share dividend payout (of free cash flow to equity),” the APD documents state.

“The directors expect to commence dividend payments out of profits for the year ended June 30, 2013, and thereafter. Such payments will be out of free cash flows and subject to certain cash reserves being retained. If such dividends were not paid, there would be an unnecessary build up of cash balances on the balance sheet of the company for which it is not expected to have any use.”

The 40 per cent ratio was set to increase following the end of the 2015 financial year, and APD added that it was looking to maintain a $2 million cash reserve.