Budget reveals new listings for TTSE
The Budget presented to Parliament by the Minister of Finance included a number of potential activities seeking to enhance the local stock market. In his speech, the Minister of Finance outlined that the Government will issue initial public offerings (IPO) of shares in-
(1) First Citizens Bank Limited (FCB)
(2) Trinidad and Tobago Mortgage Bank (TTMF) - which is an amalgamation of Trinidad and Tobago Mortgage Finance Company and Home Mortgage Bank.
(3) CLICO Trust Fund which will be comprised of RBL shares
First Citizens Bank
The potential listing of shares in First Citizens Bank Limited and the Trinidad and Tobago Mortgage Bank would give investors the opportunity to participate in these two new entities. These listings would also increase the existing market capitalisation of $98.8b by approximately $10b.
First Citizens Bank Limited is a subsidiary of First Citizens Holdings Limited, a company that is 100 per cent owned by the Government of Trinidad and Tobago. The IPO for FCB is expected to be in the amount of 20 per cent of its shareholding which equates to 47.2 million shares. If listed, FCB would be the third locally listed bank on the local exchange bringing the total to six banks on the Trinidad and Tobago Stock Exchange (TTSE). According to the Minister of Finance, the divestment of the bank through an IPO "will assist the bank in widening its Capital Base and so facilitate its expansion programme in which the Bank is currently engaged".
The Group, similar to other local banks has delivered growth over the years. Throughout the period FY 2006 to FY 2011, First Citizens reported improved estimated earnings growth as reflected in Exhibit 1 below, with an average annual increase of approximately 16.57 per cent.
At the end of the six months (March 31, 2012), the Group's Total Assets was $31.3b, while shareholders' equity was $5.6b, up 17.2 per cent for the corresponding period last year.
Based on the most recent earnings generated and using market valuations of similar local banks the potential market capitalisation is approximately $8.6B. This means that First Citizens weighting in the market could be in the range of 7-8 per cent. As such, First Citizens would be one of the top six companies on the TTSE by market capitalisation.
Valuation estimate of FCB
2011 Profit after tax $718Mn
Estimated P/E multiple 12 x
Total market capitalisation $8.61Bn
Trinidad and Tobago Mortgage Bank (TTMB)
Similar to First Citizens, the listing of Trinidad and Tobago Mortgage Bank would contribute to market capitalisation by approximately $1-2b and account for approximately 1.5 - 2 per cent of the market. This proposed merger of Trinidad and Tobago Mortgage Finance Company (TTMF) and Home Mortgage Bank (HMB) will have a combined asset base of approximately $5.5b. At the end of FY 2011 TTMF assets total $3.3b, while HMB asset base was valued at $2.2b. Shareholders' Equity in FY 2011 for TTMF was $676.9m while for HMB Shareholders' Equity was $490.8m. The listing of TTMF will grant investors access to the local real estate and mortgage market.
Update on CLICO
In 2012, the country's debt to GDP rose to approximately 46.6 per cent, up from 36 per cent recorded for the FY 2011, but still well within the acceptable benchmark range. This increase was mainly attributable to the CLICO and Hindu Credit Union (HCU) matters which cost the country $19.7 billion or 13 per cent of current GDP. It was stated that these two financial matters would be brought to definite close this fiscal year. As it relates to the CLICO resolution, it was reported that as at September 18th 2012, there were 25,115 STIP holders who accepted the Government's payment regime and accounted for $10.268 billion. This amounts to an acceptance rate of approximately 98 per cent.
The government plans to launch the CLICO Investment Fund (CIF) on November 1st, 2012. However, persons who exchanged their 11-20 year bonds for units in the Fund will not be able to trade their units until January 2nd, 2013 when the Fund is listed on the Trinidad and Tobago Stock Exchange. As part of the fiscal incentives for the Fund, the Government proposes to implement a waiver of the stamp duty on the transfer of shares. Dividends or other distributions paid to resident investors of the Fund will be tax exempted as well as the profits accruing to the Trust under the CLICO Investment Fund.
The market capitalisation of the CIF is estimated at $5.25 billion which would further increase the market capitalisation of the market.
Implications for Investors
In an environment where delisting is rampant and has outnumbered new listings on the TTSE, three new anticipated listings (FCB, TTMF and CIF) prove beneficial to the investment community. There are 29 shares that are currently listed on the first tier of the TTSE, and if this mandate is fulfilled there would be 32 shares listed.
Since 2009 at least 5 stocks have been delisted from the TTSE, pending a further increase after the expected delisting of Capital & Credit Financial Group (CCFG). With the proposed listing investors will have access to new investment options.
Not only will investors have access to a wider range of investments, but the quality of the offerings has great potential to add significant value. For instance, the strength of FCB as demonstrated by an increasing EPS should provide notable returns to the investor. In addition, through the listing of CIF, investors will now have indirect access to Republic Bank shares which are usually in high demand and short supply on the market.
With the FCB listing we can expect an increase in the volume of shares being traded after experiencing steady declines in recent times. As can be seen from Exhibit 1 below, total volume traded for the first 9 months of 2012 is less than the total amount of shares that will be added to the market with the FCB listing alone.
Simultaneously taking into consideration the strength of the bank and investors' appetite for new listings, high demand is expected. The over subscription of the recent NIPDEC bond is indicative that there is still a high level of liquidity in the market as investors are starved for investment opportunities and are faced with expensive stocks on the local market (with reference to current P/E valuations). This lack of opportunities locally will drive the demand for the increase in supply on the stock exchange.
With the proposed three new listings the tradable value will be equivalent to 8.9 Bn. FCB will account for approximately $1.7 Bn, TTMB between $1 Bn, if 50 per cent are available to the market or $2 Bn if 100 per cent shares are made available. It is assumed that all CIF shares will be made available for trading and so the tradable value would be $5.25 Bn.
Advice to investor
BOURSE is of the view that there will be substantial benefits to be gained from the new listings, both to the equity market and the investor.
The benefits of the one for one option via CIF, outweighs the bond option previously available. Essentially, bondholders can exchange their bonds for units and receive the equivalent value in units for the face value of the bond. They will not have to accept a discounted price on their 11-20 year bonds as they would have faced with their 1-10 year bonds.
Overall, once these listings come to fruition we should expect to see an increase on the local exchange both in value and volume. Investors will also benefit tremendously as they will be able to access fundamentally valuable investments which they may not have had access to before due to supply restrictions.