The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

AN outspoken opponent of the GB Power Company buy-out yesterday alleged there was shareholder “uproar” over the revelation that Emera dividends will be subject to a 25 per cent ‘withholding’ tax.

Fred Smith QC, the Callenders & Co attorney and partner, told Tribune Business that disclosure of the Canadian taxation was made by Emera executives on Monday when they met with Freeport-based ICD Utilities shareholders to discuss the proposed buy-out of the Bahamian minority.

Describing the meeting as “contentious”, Mr Smith said: “The executives from Emera tried to persuade the Bahamian shareholders that this was a great deal for them and, unfortunately, no one agreed with that. “Not one Bahamian shareholder wanted to dispose of their shares. All those who spoke emphasised these were long-term investments for their children’s inheritance, and everybody wanted to continue to own a piece of their own rock.

“When it was disclosed that, in addition to losing our shares in ICD Utilities, we would have to pay a 25 per cent withholding tax to the Canadian government on any of our dividends, people were in an uproar. They feel they are losing their entitlement to own a piece of their own energy company and their potential future,” he added.

“I don’t want to be owning something in Canada and paying taxes on it. I don’t want to get into tax issues in other jurisdictions.”

Mr Smith is just one voice, and other sources present at Monday’s meeting - speaking on condition of anonymity - suggested there was less acrimony than the QC indicated. They confirmed that the ‘25 per cent withholding tax’ issue was raised, but said a discussion of the implications, rather than an “uproar”, followed.

A GB Power Company spokesperson yesterday said they would have to refer Tribune Business’s questions on whether the Canadian tax treatment would impact Bahamian shareholders, and to what extent, to Emera in Canada for comment.

However, research conducted by Tribune Business online indicates that the Bahamas’ ‘zero tax’ platform, and inability to enter into double taxation agreements, may have left ICD Utilities exposed to this ‘withholding tax’ should they elect to take Emera Depository Receipts (DRs) as full - or partial - exchange for their shares in the BISX-listed entity.

For example, PricewaterhouseCoopers (PwC) Canadian website states: “Withholding tax at a rate of 25 per cent is imposed on interest (other than most interest paid to arm’s-length non-residents), dividends, rents, royalties, certain management and technical service fees, and similar payments made by a Canadian resident [which would be Emera] to a non-resident of Canada.”

If the Bahamas had a ‘double taxation’ treaty with Canada, this rate might well have been lower, but this potential liability and exposure may well deter the 19.63 per cent Bahamian minority in ICD Utilities from taking the DR option.

Emera, which owns the majority 80.37 per cent equity interest in GB Power, has described its offer to buy-out the Bahamian shareholders as a “win-win” for all, giving them three ‘exit’ options.

They can accept a price of $8.85 per share for their holdings, representing a 26.25 per cent premium to the current $7.01 BISX price, and 33 per cent premium to the “24-month volume-weighted average price ICD Utilities.

Alternatively, Bahamian shareholders can trade their ICD Utilities shares for 0.913 Emera depository receipts, enabling them to switch their narrowly-focused investment in GB Power for an international stock with worldwide utility investments.

By taking this option, where four depository receipts will equal one Emera share, Bahamian investors will have exposure to the potential upside generated by the Canadian utility’s spread of assets in Canada and the Caribbean. The third and final choice is for the Bahamian investors, who hold a combined 39.26 per cent of ICD Utilities (translating into 19.63 per cent of GB Power), to take a combination of cash and depository receipts (DRs). Those who fail to specify their choice by November 27, 2017, will also be deemed to have chosen this option.

However, the ‘withholding tax’ issue’s emergence will likely make the latter two options less attractive. In theory, this could drive more Bahamian shareholders to take the all-cash pay-out, possibly leading to Emera acquiring 100 per cent of GB Power’s equity and taking the monopoly power provider private - a goal that some observers believe is the real objective.

Mr Smith said that when he raised the prospect of GB Power being taken private, and less open to public scrutiny because it did not have to publish its annual accounts, Archie Collins, the chief executive, responded by saying they could be obtained from the Grand Bahama Port Authority (GBPA).

“The GBPA is a factory of secrecy, and there are no statutory instruments or powers which we could use to force the GBPA to give us the accounts,” the QC added. “So the Government, URCA, the Bahamian residents and licensees would never know the financial position of GB Power.”

Mr Smith, meanwhile, said Emera executives pointed out - correctly - that the GB Power buy-out is not ‘a done deal’, since it requires a majority of minority, non-Emera investors to vote in favour of it at the special and annual general meeting (AGM) on November 8. If the vote is favourable, then 75 per cent of ICD Utilities’ investors, including Emera with its 60 per cent-plus interest, must also back it.

The prominent QC, though, said Emera and GB Power executives, together with members of the ICD Utilities’ Board of Directors, refused his request to provide contact information for all the latter’s shareholders so that the minority could organise and discuss their options prior to the November 7 meeting.

While such information would be available via the Bahamas Central Securities Depository (BCSD), Mr Smith said the refusal by the company and its majority shareholder was “grossly unfair”, suggesting it was part of “divide and conquer tactics”.

“A number of people complained about why this was happening in such a rush,” he added of the $35 million buy-out. “Why the urgency? This is akin to a corporate gun being put to our heads to decide, and by pulling this off in crisis fashion, it will be hugely prejudicial to the Bahamian shareholders.

“Looking at the time they’re doing this, just before Christmas when people need money and just before a dividend payment is likely due, it is obvious this is a carefully-crafted squeeze.”

Mr Smith continued: “The meeting ended civilly, but the shareholders disgruntled. Some said they had no choice but to sell, and those who didn’t want to sell felt they’re squeezed by GB Power or ICD Utilities never paying a dividend in the future.

“That was the mantra at the meeting: If you take the Depository Receipts you are at least going to get a quarterly dividend, netting at 3.2 per cent, but you’re not guaranteed a dividend from GB Power, and there haven’t been many. That seemed to me like a veiled threat: You sell, or you’re never going to get a dividend from GB Power.”

Mr Smith added that in response to his questions, Emera executives confirmed that the KPMG accounting firm, which produced the ‘fairness opinion’ justifying the prices and options offered to the Bahamian minority shareholders, did work for it elsewhere in its corporate empire.

“They said they were able to put up a Chinese wall on this transaction,” he added.

Mr Smith again called on the Government and Bahamian regulators to intervene, pointing out that energy company and utility shares globally tended to continue appreciating as safe, long-term investments.