The Tribune

THE $35 million GB Power buy-out was yesterday branded “financially catastrophic” for Bahamian investors, an outspoken QC arguing they will will “lose their preferential tax position”.

Fred Smith QC, the Callenders & Co attorney and partner, told Tribune Business that minority ICD Utilities shareholders who decided to exchange their shares - in whole or in part - for Emera Depository Receipts (DRs) would relinquish the ‘no tax benefits’ provided by Freeport’s Hawksbill Creek Agreement (HCA).

Pointing out that DR holders would be exposed to the 25 per cent Canadian withholding tax on any dividends, and currency fluctuations against the US dollar, he again urged Emera to offer ICD Utilities shareholders shares in GB Power itself.

This would require the 19.6 per cent Bahamian minority to receive one GB Power share for every two ICD Utilities shares, but Archibald Collins, the latter’s chief executive, said this option was “never considered” amid Emera’s determination to streamline the utility’s ownership structure into a single shareholder.

Mr Smith, though, argued that Bahamian shareholders opting for DRs, in addition to facing taxation/currency risks, will also lose the current advantages provided by GB Power not having to pay real property taxes or Business License fees due to the HCA. Such advantages, he argued, will be diluted when GB Power is absorbed into Emera’s wider corporate structure, as both he and other opponents made a last ditch bid to rally Bahamian shareholder sentiment against the buy-out ahead of tomorrow night’s meeting and vote.

“GB Power is an extremely profitable company,” Mr Smith told Tribune Business, “but when it merges into Emera it will lose its preferential tax position within the Bahamas’ jurisdiction. It’s lost or diluted by merging its accounts into the parent structure.

“This is where the minority Bahamian shareholders in ICD Utilities are being dramatically affected. When you factor in the 25 per cent withholding tax, the averaging out of GB Power’s profits into the overall corporate structure of Emera and the challenges faced by Canadian dollar currency fluctuations, this is a financially catastrophic deal for Bahamian investors in ICD Utilities.”

He added: “In addition to that, Emera doesn’t pay tax locally. It doesn’t pay real property tax, it doesn’t pay Business License fees on its gross turnover like companies in Nassau.

“Because of its jurisdiction within the Bahamas, GB Power does not pay any Canadian or provincial taxes. When all these factors are taken into account - at the Bahamas jurisdiction, Freeport and Hawksbill Creek Agreement level - it is a very profitable and valuable company.

“That is where the mischief is for Bahamian shareholders. They’re being deprived of all the benefits of investing in a company which, even within the Bahamas, enjoys preferential tax benefits that will be completely lost if Bahamians only own DRs.”

The buy-out offer requires approval by a majority of non-Emera shareholders at ICD Utilities’ annual and special meeting tomorrow night, but could potentially end Bahamian ownership in GB Power if all accept the $8.85 per share cash payout option.

That price is a 26 per cent premium to the current BISX trading price, and 33 per cent higher than the 24-month volume weighted average price, with KPMG Advisory Services having advised ICD Utilities’ independent directors that the offer is fair.

However, Mr Smith and others believe the offer is under-valued, with some alleging that Emera, as GB Power and ICD Utilities’ majority shareholder, has “suppressed” dividend payments to keep the share price low.

They are arguing that the Canadian utility is seeking to acquire 100 per cent ownership “on the cheap”, with GB Power’s value set to increase as Grand Bahama’s economy recovers and debt taken on to build the new generation plant is paid down. Tribune Business has even seen social media claims that the shares should be valued as high as $15.50.

Mr Collins previously questioned the “metric” used to arrive at such valuations, pointing out that ICD Utilities had never been above $8 since Emera paid $8.20 per share to acquire Lady Henrietta St George’s 50 per cent interest in 2008.

However, Mr Smith retorted: “When properly valued and dividends are declared, GB Power is a very profitable piece of the Emera puzzle.

“I can understand wanting to streamline the ownership and the rest of it, but the streamlining is at the expense of Bahamians who bought into the GB Power construct 23 years ago. Therein lies the mischief for Bahamians.”

With GB Power having “weathered the storm” produced by Hurricane Matthew, and achieved generation and rate stability, Mr Smith said the energy monopoly was “poised to dramatically increase in value and be paying a regular quarterly dividend as it used to do”.

Mr Smith, who is still drafting a Judicial Review challenge to the Emera buy-out that he hopes to file this week, added that the late Edward St George had promised ICD Utilities shareholders in a November 15, 1996, letter that they would receive a quarterly dividend. He argued that this represented “a contract” with investors that is now in danger of being lost.