Non-resident 11-20 year Clico bonds
We, at Bourse will be discussing the investment options for non-resident 11-20 CLICO bondholders (other than residents of Guyana, the Eastern Caribbean countries and the Cayman Islands), and the performance of the CLICO Investment Fund since its incarnation. We will then briefly explain the process you will need to undergo, if you opt to sell your holdings.
The Clico Investment Fund (CIF) was formed as part of measures announced by Finance Minister Larry Howai, in his national budget presentation last year as payoff to CLICO and British American Trinidad investors and policyholders. The CIF closed-ended mutual fund has an estimated total asset value of $5.11b (204 million units at a Net Asset Value (NAV) of 25.06) as calculated by Bourse as at August 23, 2013. However the CIF Unit closed at a traded price of $21.30 on the Trinidad and Tobago Stock Exchange, which represents a discount of 14.8 per cent. The underlying investments of the Fund remain 40,072,299 Republic Bank shares and Government of Trinidad and Tobago (GORTT) bonds valued at 703m.
Recent CIF Dividend Payout
Last week, CLICO Investment Fund (CIF) unit holders were due to collect their second semi-annual dividend payment of $0.32 cents per unit on August 21, 2013. Any unit holder who sold his/her units on or before July 24 (ex-dividend date) would not be entitled to receive the final dividend. It is important to note that this payment, when added to the interim dividend of $0.56 paid in February, brings the total dividends paid for the year to $0.88. This represents a return on investment or yield of 3.5 per cent to its conversion price of $25.00 and 4.1 per cent to its average market price of roughly $21.50 (Exhibit 1).
Since listing, the market price fell to a low of $20.25 on January 10, 2013, climbing thereafter to $23.00. This represents the second highest price after closing at $24.90 on the first day of trading). Trading activity was relatively intense in the run-up to the ex-dividend date of July 25, 2013, as investors were attracted to the second dividend payment in August. Prior to the ex-dividend date, the average daily volume of CIF shares traded were 128,109 shares versus a figure of 36,800 shares post ex-dividend date.
Bourse calculated the NAV based on the underlying value of the assets in the Fund. The NAV of the Fund is sensitive to its components; as the price of the Republic Bank shares (RBL) and the Government Securities fluctuate, so too will the value of the NAV. With RBL stock presently trading at a price of $110.01, we estimate a CIF NAV of $25.06. At a listed price of $21.50, the CIF is trading at a discount to its NAV as mentioned before.
From our calculations, the listed price of CIF would imply an RBL value of $90.89 (Exhibit 2). This compares to its current trading value of $110, a difference of 17.38 per cent. Investors holding CIF units are gaining indirect RBL exposure at a discounted price when compared to traded price of RBL, with an explicit claim to RBL shares upon closure of the CIF structure in January 2023.
Options for Non-Resident Holders
The recent advisory, published by the Ministry of Finance, to non-resident holders of 11-20 bonds outside of approved countries has summarised three available options. These include:
1. Wait for the bonds to mature
2. Sell Bonds at commercial banks and other market participants, based on the prevailing competitive purchase price; or
3. Obtain permission from the regulatory authorities in their country and present such permission to a broker in Trinidad, who will be able to assist with the process of converting their bonds to units in the Fund.
For many investors, the opportunity cost of holding on to 11-20 holdings may be too great. Similarly, obtaining individual permissions from various regulatory agencies may not be feasible. It would appear then, that the most feasible option for non-resident Clico 11-20 bondholders who cannot convert to CIF units would be an outright sale. At prevailing TTD Government Bond yields, the intrinsic value of a package of 11-20 bonds is estimated to be in the region of $63-$66 per $100 face value (Exhibit 3).
Investors who wish to pursue the sale of their 11-20 holdings should contact any of the licensed broker dealer firms, including Bourse, which provide this service, as pricing may be higher or lower around the estimated intrinsic value of these bonds. There are innovative methods which can be applied for which 11-20 Clico non-resident policyholders can benefit. Bourse continues to be at the forefront when it comes to innovative methodologies.
For more information on the Clico 11-20 Bonds held by non-residents and other investment themes, please contact Bourse Securities Limited, at 628-9100, email us at firstname.lastname@example.org or visit us at any one of our three offices located in Port-of-Spain, Chaguanas and San Fernando. Investors can also visit our website at www.bourseinvestment.com or Bourse Securities Limited Facebook page.