The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The ‘HoldingCo’ that will own the Bahamian people’s 51 per cent majority stake in the second mobile operator could “jump start” the Bahamas International Securities Exchange (BISX) and wider capital markets, Tribune Business was told yesterday.

Gowon Bowe, the PricewaterhouseCoopers (PwC) Bahamas accountant and partner, said “we may have a capital market yet” if HoldingCo’s creation could be aligned with a Government decision to list its $3 billion-plus worth of long-term bonds on BISX.

His comments are the first indication yet that HoldingCo’s shares may ultimately be listed on BISX, a development that would create a much-needed broadening and deepening of Bahamian capital market investment options.

Confirming that HoldingCo was intended to be a national investment vehicle that took equity positions in major infrastructure assets and public-private partnerships (PPPs), Mr Bowe said its creation and structure now depended on the outcome of the second mobile licence bidding process.

While Bahamas-based institutional investors had show “a fair level of interest” in investing in HoldingCo, the PwC accountant said the key was to match their risk appetite and investment return targets with the business plan and projections of the winning bidder.

Mr Bowe, who is part of the PwC team advising the Government and its Cellular Liberalisation Task Force, effectively said they had taken the process of HoldingCo’s creation as far as they could until the Christie administration announces the new licence holder.

“It’s still contingent on the results of the auction process,” Mr Bowe said of HoldingCo’s creation and structure. “We’ve moved to the stage of the sounding out of various institutional investors that represent the broadest cross-section of Bahamians.

“We’ve got a fair level of interest, but this all hinges on being able to see the financial numbers and projections” for both HoldingCo and the winning bidder.

“It’s still contingent on who the successful bidder is, because their numbers don’t always align,” Mr Bowe explained. “They have different business plans, different ways of doing things.”

Cable Bahamas and Virgin Mobile (Bahamas) are the two contestants left in the spectrum auction round, which began on Monday. They are submitting competing bids for the wireless frequencies that the second operator will use, and the Government’s goal is to announce the winning bidder this month.

Mr Bowe said HoldingCo itself would likely be a strong performing investment, based on key indicators such as a potentially large subscriber base, high revenue per customer projections, potential total revenues, ability to control expenses, and forecast profitability and break even points.

Yet these had to be married with the winning bidder’s own investment and financial goals, particularly the projected upfront capital outlay to construct its network and operating expenses, to determine HoldingCo’s internal rate of return (IRR).

“That will allow investors to determine whether the risk associated with the investment has the appropriate rate of return attached to it,” Mr Bowe told Tribune Business, emphasising that Cable Bahamas and Virgin Mobile (Bahamas) had different business plans and financial projections.

The second cellular operator’s business plan, and how quickly it will build-out its infrastructure given that it has three years to produce nationwide coverage, will be key factors for Bahamian investors to weigh.

And the new operator - whether Cable Bahamas or Virgin Mobile (Bahamas) - have to agree with HoldingCo on how the business should be financed - through equity, debt or a combination of both.

Digicel, which pulled out of the bidding after being cleared to go into the auction phase, previously estimated its Bahamian network roll-out costs at between $200-$250 million.

If Cable Bahamas or Virgin Mobile (Bahamas) costs are similar, this would require HoldingCo’s investors to raise a collective $100-$125 million to finance their share of the network roll-out capital expenditure.

The “payback period” for investors also has to be determined, and other confidential details associated with the two remaining bids cannot be shared until the process is over.

With the level of investment required still uncertain, Mr Bowe said the Government’s advisers had still completed “the most important” part of any capital-raising placement - “gauging the appetite, and getting a fair indication, of investors’ willingness to participate”.

Acknowledging that HoldingCo remained “a work in progress”, the PwC accountant and partner added that all the legal documents and other necessary background work had been completed “to take that train forward very quickly” once the bidding process was completed.

He confirmed to Tribune Business the intention for HoldingCo to not just be an investor in mobile communications, but to eventually act as a national investment fund to broaden Bahamian ownership of national infrastructure assets and the wider economy.

“It’s still intended to be structured as a mechanism to allow the broadest cross-section of Bahamians, via institutional investors, to participate in the ownership of key assets, avoid dominance by one investor group, and maximise ownership in the patrimonial assets of the country,” Mr Bowe told Tribune Business.

“Hopefully, this is the beginning of many more things to come. While we need to move to privatisation, we want to try to have returns derived from any assets in the country benefit the greatest number of people.

“We may have capital markets yet if we can get this thing [HoldingCo] aligned with the Government’s paper being listed. We can have a jump start for BISX yet.”

HoldingCo is being designed for the long-term as a fund that will give Bahamian private investors the ability to access PPP-type infrastructure projects and other large investments by pooling their capital resources.

This objective is a key reason why Bahamian investors are not being allowed to hold a 51 per cent stake in the new mobile operator directly, as the Government has greater designs.

Among potential investors targeted are pension funds and their administrators; credit unions; insurance companies; mutual funds and other asset managers, as these entities represent the broadest possible cross-section of Bahamians.

The cellular liberalisation bid documents make clear that the Government is a ‘facilitator’ for the creation of HoldingCo and the transfer of a 51 per cent stake in the second mobile operator to it.

It will effectively have to act as an ‘underwriter’ on the transfer to Bahamian private investors, and may have to retain a small equity stake in HoldingCo for a time if all its shares cannot be placed. Yet the Government has no interest in being a HoldingCo investor for the long-term.