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CIF post-listing update

Recap:

The Clico Investment Fund (CIF) was formed as part of measures announced by Finance Minister Larry Howai in his national budget presentation on October 1 2012 as payoff to CLICO and British American Trinidad investors and policyholders. The CIF is a closed-ended mutual fund with a total asset value of $4.93B [204M units at a Net Asset Value (NAV) of $24.17] as at January 31 2013. The underlying investments of the Fund are 40,072,299 Republic Bank shares and government bonds valued at $703M.

Of the 14,236 bondholders, approximately 92 per cent or 13,070 were residents of Trinidad and Tobago and therefore were automatically eligible to accept the offer. Of these eligible bondholders, approximately 50 per cent or 6,582 persons accepted the offer to transfer their bonds for units in the CIF. Out of the 14,236 residents and non-resident bondholders, the 6,582 persons who accepted accounted for approximately 46 per cent. The Bonds for Units offer was initially not made to non-residents of Trinidad and Tobago, but since the close of the offer on December 14 2012, the Government has received approvals from the regulators in three jurisdictions – Guyana, the Cayman Islands and Canada.

The CIF prospectus states that the Fund will comprise of 204M units. The Ministry of Finance has indicated that during the offer period, $3.2B worth of Bonds was converted into Units. At a conversion rate of 40 units per $1,000 in bonds, the $3.2B in bonds amounts to approximately 129M units. Therefore, at the point of listing, the Fund was approximately 63 per cent subscribed by Unitholders and only these 129M Units would have come to market. After the offer period, GORTT became the holder of the remaining 37 per cent unsubscribed units. All the unsubscribed units will be held in an account at the T&T Centralised Depositary (TTCD) until the bondholders are prepared to exchange their bonds for CIF units in over the counter trades (OTC).

OTC Trading

January 3 2013 marked the beginning of the OTC trading. The process for conversion remains the same with the exception of the completion of two additional forms. The first is a Transfer Form for the transfer of units from GORTT to the Unitholder and the second is a Transfer Form for the transfer of units from the Unitholder to the TTCD. Some OTC trading has taken place since 3 January but no official figures on the quantity of Bonds converted have been received from the Ministry of Finance. The Register of Members was closed from January 29 until February 20 2013 inclusive and as a result no applications for OTC transfers received after January 29 2013 will be processed until the register reopens.

The benefit to Unitholders of converting their Bonds to Units during the initial offer period was the absorption of all of the fees attached to the conversion by the Government. For the OTC trades, the applicable fee is $345 per transaction, comprising broker commission of $300 and a TTCD transfer fee of $45. Conversion during the offer period also ensured that those Unitholders would be eligible for the first Distribution payment once they held on to the shares up to the ex-div date of January 25 2013.

Trading History

On January 7 2013 the CIF was listed on the Trinidad and Tobago Stock Exchange (TTSE) at an opening price of $25.00 per share. At the end of the day 300 shares had traded and the CIF closed at $24.90. The Directors have declared the first distribution of $0.56 payable on the February 21 2013. The next scheduled distribution date is August 21 2013.

Currently, the CIF is trading at a price of $21.26, down 15 per cent year to date (YTD). The total volume traded since listing amounts to 1.65M units with the highest volume, 0.31M units being traded on the 11th January 11 (Exhibit 1).

Since listing the market price has fallen to a low of $20.25 on January 10 after which it climbed to $23.00 on January 15 (its second highest price after the $24.90 closing price on the first day of trading). Trading activity was most intense in the run-up to the ex-dividend date as investors were attracted by the distribution payment. Before the ex-dividend date (January 25 2013), the average daily volume of shares traded was 99,940 shares versus a figure of 39,932 shares post ex-dividend date. When compared to the stocks listed on the TTSE, the CIF had the highest average daily volume traded for the year of 83,062 shares.

The NAV is calculated based on the underlying value of the assets in the Fund. As the price of the Republic Bank shares (RBL) and the Government Securities increase or decrease this will impact the value of the NAV. At the point of inception of the Fund, the price of RBL shares was $109.69. This resulted in a NAV of $25. Presently, RBL is trading at a price of $105.50 resulting in a estimated NAV of $24.17 (Table 1). At a listed price of $21.25 the CIF is trading at a discount to the NAV (Exhibit 2). From our calculations, the listed price of CIF implies an RBL value of $90.64. Thus, those investors holding CIF units are gaining indirect RBL exposure at a discount to the price of RBL. The CIF has a market to book of 0.88, meaning the CIF's underlying assets are approximately 14 per cent undervalued.

Since the listing of the CIF, the price of RBL has remained relatively constant, peaking at $106.01 on the January 28 2013. As at January 31 the price has fallen back to $105.50. Trading volumes remained weak with only 1,590 shares being traded on average daily volume.

RBL's Unaudited Three Months Results (31st December 2012)

For the three months ended December 31 2012, RBL recorded a 2.4 per cent increase in Profit after tax from $288.9M to $295.8M. Profit attributable to shareholders went up 4.78 per cent to $285M. The Group's Earnings per share (EPS) climbed 4.1 per cent from $1.71 to $1.78 for the three months ended December 2012. RBL continues to be challenged locally by high liquidity, falling interest rates and minimal investment opportunities. However, the Group remains encouraged with the upswing in credit demand reflected in the 5 per cent increase in the Group's Advances portfolio year on year.

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