The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Sceptical shareholders yesterday said Bank of the Bahamas “cannot be serious” over the share price and one-week timeline for its $40 million rights offering.

Darron Cash, the former FNM chairman, described as “funny” the $2.70 per share selected by the BISX-listed institution for a rights offering that is intended to recapitalise the bank and end its non-compliance with Central Bank of the Bahamas requirements.

The $2.70 price represents a 48.3 per cent discount to Bank of the Bahamas’ current share price on the Bahamas International Securities Exchange (BISX), but Mr Cash said this still “grossly overvalued” the bank following its woes over the past three years.

He also blasted the one-week timeline for the rights offering, which opens today and closes next Monday, September 5, as totally inadequate for the 35 per cent minority investors to assess the terms offered.

Suggesting that few, if any, minority shareholders were likely to subscribe for extra shares, Mr Cash said they would be more inclined to invest if the Government were to reduce its 65 per cent majority shareholding.

The Government holds this position via a combination of the National Insurance Board (NIB) and the Public Treasury, and Mr Cash suggested that a reduction in its holdings would give shareholders confidence that a change in the bank’s policies may be forthcoming.

“My immediate thought was: They couldn’t be serious,” Mr Cash replied, after being informed of the Bank of the Bahamas rights offering and its terms by Tribune Business.

“I confess that I am very, very sceptical and that I’m tempted to speak in more derisory terms, but I will give them the benefit of the doubt to see whether the prospectus puts out answers to the questions shareholders have.”

The bank is offering existing shareholders as at July 31, 2016, the opportunity to purchase an extra share for every additional 1.44 that they hold, and at a price of $2.70, in a bid to raise $40 million of equity capital.

Bank of the Bahamas said the funds raised would be used to bring it into compliance with the Central Bank’s Tier 1 capital requirements, given that it has been in breach of two of the latter’s five key capital ratios for almost a year.

Its prospectus, a copy of which has been obtained by Tribune Business, states that the monies - if raised- will also be used to finance the bank’s “growth in consumer lending” and “operational efficiencies.

Mr Cash, though, took issue with both the one-week offering duration and the $2.70 share price. “It seems to me that under most normal circumstances, a week is an unrealistic time for shareholders to understand the details of a rights offering,” he told Tribune Business.

“And for a company as deeply troubled, and troubled for such a sustained period of time as Bank of the Bahamas has been, it seems that a week is completely unreasonable for shareholders to evaluate the offering.”

Both Mr Cash and Michael Lightbourn, a fellow Bank of the Bahamas shareholder, told Tribune Business yesterday they had yet to receive the prospectus setting out all the rights offering details.

However, one other shareholder, speaking on condition of anonymity, told this newspaper that he had obtained a copy of the rights offering document. Tribune Business understands that the prospectus was sent out to investment houses, brokers and other institutional money managers on Friday.

However, this raises questions about information asymmetries and the maintenance of an orderly Bahamian capital market, given that some Bank of the Bahamas shareholders gained an advantage over their fellow investors.

The Bank of the Bahamas prospectus does include an explanation for how the $2.70 rights offer price was calculated (see other article on Page 1B), and discloses that the company’s stock will commence trading post-offering at $4.18 - a 20 per cent discount to the current $5.22 market price.

The fact some shareholders already possess the prospectus is shown by BISX trading data, which shows 28 ‘sell’ orders have been placed - including one for more than 83,000 shares - at that same $4.18 price.

Given that shareholders are supposed to receive material information on their company at the same time, so that none gains a competitive advantage, this may be a situation that requires BISX and Securities Commission examination.

Aside from this, Mr Cash said: “The offering price of $2.70 ought to be viewed with some suspicion. The last valuation I looked at seven months ago had Bank of the Bahamas valued at less than $2.70 per share, because the long-term worth of the company was extremely diminished.

“To suggest shareholders are getting a deal at $2.70 os worthy of deep suspicion.”

The Bank of the Bahamas press release confirming the $40 million rights offering had lauded $2.70 as an “attractive price”, but Mr Cash said this ignored problems with the current $5.22 per share BISX trading price.

BISX data shows that there are around 130 ‘sell’ orders currently placed for Bank of the Bahamas stock, at prices ranging from $4.18 to $6.24 per share, and no ‘buy’ orders. This essentially means investors, both retail and institutional, are desperate to offload their stock given three years of consecutive losses and the $100 million government ‘bail out’.

But there are no willing buyers, and Mr Cash said: “The value on BISX is grossly erroneous and amazingly overvalued, and in no way reflects the value of the company.”

He added that many shareholders who wanted to sell had likely refrained from placing orders with their brokers due to the absence of any buyer interest.

“The idea of people getting value at $2.70 is grossly disingenuous on the part of the bank,” Mr Cash told Tribune Business.

“I think it will be extremely important for shareholders to see a substantial and meaningful document out there to explain what the $40 million is for, and how the $40 million will be invested.

“One looks at this and sees where the current directors of the company have destroyed a considerable amount of value, and now they’re using the rights offering to get it back from the same shareholders and rebuild the value they have lost,” he continued.

“It’s almost unconscionable to expect existing shareholders to put $40 million into a company where the current directors have destroyed so much value without any indication of change at the top.”

Mr Cash said existing shareholders may be encouraged to invest further in Bank of the Bahamas if there was greater “clarity” over its future and the Government’s plans, especially if the latter was inclined to reduce its equity stake.

“If there is a meaningful effort, either in this exercise or in the near future, to divest some of its shares in Bank of the Bahamas, that will go a long way to improving confidence among existing shareholders that there will be a meaningful change in policies at the bank if they invest more money,” he told Tribune Business.