The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government needs to go further than its Companies Act reforms to truly protect Bahamian minority investors, an investment bank chief urged yesterday.

Michael Anderson, RoyalFidelity Merchant Bank & Trust’s president, told Tribune Business that while the Companies (Amendment) Bill was “a good start” it did little to address the key issues impacting minority investors in the Bahamian capital markets.

He explained that the Bill, which was debated in the House of Assembly yesterday, focused more on transparency, disclosure and corporate governance weaknesses rather than concerns about minority investors obtaining a voice on the Boards of publicly-traded companies via independent directors and obtaining fair treatment when controlling/majority investors were bought out.

Mr Anderson acknowledged that these issues may be dealt with elsewhere, such as in the Takeover Rules developed by capital markets regulator, the Securities Commission, and said he had seen a draft of the Companies (Amendment) Bill around one month ago.

The reforms were billed as “an Act to provide for enhanced protection of minority investors, shareholder governance and for matters connected thereto”, and Mr Anderson told this newspaper: “I think it’s a start.

“I looked at it and there were no major concerns on my part in terms of the changes being proposed. It’s a good start for what they’re trying to achieve. There are a number of matters that need to be addressed from a minority protection perspective, but that Bill sought to deal with disclosure issues and so on.

“In terms of requiring minorities to deal with companies in a certain way, there was not much I saw in terms of that issue. Even though my understanding was it was trying to provide protection to minorities, most of it seemed to be straightforward around improved disclosure.”

While agreeing that improved transparency and corporate governance was important, Mr Anderson argued that the legislation failed to touch on key areas that have been highlighted before when it comes to minority investor protection.

“I didn’t see anything that made minorities better protected,” he argued. “There may be more disclosure. I think it’s a good start on the documentation around this issue, but there are other aspects to be dealing with from the minority protection point of view.”

He identified these as “more directors linked to minorities, having representation on the Board and requiring companies where there are buy-outs of the majority to be forced to make the same offer to the minority”.

“They have to disclose more,” Mr Anderson said of the legislation’s impact for BISX-listed and publicly traded companies, “but they don’t have to change how they’re being run. Most of what it’s talking about is disclosure. It was more a strategic document than looking out for the minority.”

Minority shareholder protection has long been seen as a weak point in Bahamian capital markets regulation, especially when it comes to takeovers of publicly-traded companies - including those listed on the Bahamas International Securities Exchange (BISX).

The issue first reared its head when Colina acquired the listed life and health insurer, Global (Bahamas), and continued with the changes of majority ownership/control at Bahamas Supermarkets (City Markets) and ICD Utilities/Grand Bahama Power Company.

In all three cases majority ownership and control was acquired by an outside entity, leaving minority investors holding shares in companies whose strategic direction and management was in different hands.

This is vastly different from more developed capital markets such as the UK, where the Takeover Panel requires bidders to make an offer to acquire 100 percent of a publicly-traded company’s outstanding shares once they build up an equity interest of more than 29.9 percent.

Colina’s purchase of the majority interest in the former RND Holdings from ex-Cabinet minister Jerome Fitzgerald is the only time when the same price and terms have been offered to Bahamian minority investors to determine whether they, too, wish to exit.

However, the draft Takeover Rules drawn up by the Securities Commission mandate that all shareholders, including minority investors, be supplied with the same information at the same time by potential acquirers, and that they are to be treated fairly and offered the same price, terms and conditions.

Another significant issue in the Bahamian capital markets is that most BISX-listed companies are either controlled by a single majority owner or group of like-minded investors collectively own most of the shares.

This has made it difficult for minorities to intervene and influence how management are running their investments which, in the case of Bank of The Bahamas, were virtually wiped out. It was only after its near-collapse, and under minority investor pressure, that Bank of the Bahamas changed its Articles of Association to permit independent directors to be appointed to the Board. Previously, all were appointed by the Government as majority owner.

Mr Anderson, meanwhile, said “none” of the minority shareholder protections employed by the likes of the US and UK were addressed in the Companies (Amendment) Bill. “From my perspective you know more about the company,” he added.

“People have to disclose more to you, but I don’t know how protected you are by these changes. If the intention was minority protection, there are a number of other issues to be addressed to achieve that.

“Maybe this is a start. The way it was put forward was to protect minorities, but all it did at the end of the day was improve disclosure.”

The Companies (Amendment) Bill’s changes, according to its “objects and reasons”, are designed “to support the growth of equity markets by providing for the enhanced protection of minority investors primarily as it relates to conflicts of interest, related party transactions, shareholder governance and matters connected thereto. It seeks to bring these aspects of the Companies Act in line with international best practice”.

The Bill requires nominee shareholders to identify the beneficial owners on whose behalf they are holding shares, with the information maintained at the company’s head office. It also requires directors to specify the amount of shares or subscription rights they may grant, and give a timeline for when this expires.

Subsidiary companies are to be banned from holding shares in their parent once the Act passes as a means of enhancing corporate transparency. Such existing arrangements can continue but they will be stripped of their voting rights.

The Bill also aims to prevent insider dealing by directors and senior officers through requiring them to disclose their interest in any transaction or contract with the public company. Failing to do so could result in the court setting aside such deals.