Tue | Jan 23, 2018

Jamaica Public Service to raise US$200m on local market

Published:Wednesday | June 22, 2016 | 12:00 AMSteven Jackson
Dan Theoc, JPS chief financial officer
JPS headquarters in New Kingston.

Power utility Jamaica Public Service Company (JPS) will seek to raise US$201 million in the local market in what its chief financial officer, Dan Theoc, is describing as the largest offer of its kind in Jamaica.

The offer, likely to be structured privately, translates to more than J$25 billion.

Brokers will start promoting the issue within the next few weeks as part of plans to finance the upgrade of JPS's Old Harbour power plant, which is being converted to operate on either oil or natural gas.

"We will be putting in approximately US$100 million in equity and raising US$201 million in debt," Theoc said in his address at a JPS Nation Building Breakfast Forum held at the Terra Nova Hotel in Kingston on Tuesday.

"What excites me about that is that there will be no foreign-direct investment or development financial institution money. This money gets to stay in Jamaica. That means pension funds, the banks and folks like you get to benefit from those investments," he said.

Early signs indicate the market is anticipating the offer. Rezworth Burchenson, head of pension management company Prime Assets Management Limited, says as yields fall on government securities, pension funds have been seeking alternative means to boost returns.

The JPS offer has the added side benefit of tackling the high cost of energy, Burchenson said.

The terms of the pending issue were not disclosed by Theoc, but the tenure will be around 12 to 15 years.

Theoc, in time allowed for questions at the forum, told The Gleaner that the cost of funding would "admittedly be slightly higher" than sourcing financing internationally from the IFC, an arm of the World Bank.

"But the idea is that the funding gets to stay here in Jamaica," he asserted.

Sources in the know, however, say National Commercial Bank Jamaica has been tapped as lead arranger for the financing. For now, the structure is said to include a 15-year bond priced at 9.0 per cent to raise US$20 million; a 12-year loan of US$71 million; and a 15-year loan of US$110 million.

Through a newly created vehicle called South Power Jamaica Company Limited, the utility expects to build a 190-megawatt combined-cycle plant at Old Harbour costing some US$300 million. It will be developed alongside the existing facility, but once constructed, the old plant will be reduced to a brownfield site.

JPS has already signed New Fortress Energy as gas supplier. The American company will finance and develop the gas infrastructure costing some US$200 million. Together, the projects are estimated at around US$500 million, but each partner will invest only in their side of the project.

JPS previously explained that it would hold no ownership in the gas infrastructure project nor contribute to the cost of developing it, but will solely be a client of New Fortress, which will build its pipeline to connect to the JPS plant.

The same arrangement applies to the gas infrastructure under development by New Fortress in Montego Bay, which will feed gas to JPS' Bogue plant.

JPS balance sheet totals US$776 million of which US$305 million relate to long term loans and US$27.7 million preference shares.

JPS's last fundraiser locally was a new class of US dollar-indexed preference shares - JPS 9.5% F - issued via private placement in 2013 with take-up primarily by Jamaican pension funds and other institutional investors.

The Class F pref, which pays dividends in USD, was subsequently listed on the Jamaican-dollar market of the Jamaica Stock Exchange and currently trades at $1,247 per share.

JPS now has five classes of preference stock trading on the Kingston-based exchange. It's unclear whether the utility also plans to list the US$20m bond after the offer.

Shareholder equity in the utility as US$373 million at March 2016.

JPS president and CEO Kelly Tomblin says the LNG projects along with renewable plants would reduce the power utility's reliance on heavy oil from 95 per cent to 50 per cent by 2018.

Gas supplies to Bogue were initially to begin in April but were rescheduled to August. Now Tomblin says gas delivery will begin "by the end of summer", which appears to extend the timeline to near the end of September.

At the forum, JPS made no mention of the potential implications for the commissioning of its gas-fired plant with news that Golar LNG, the shipper hired by New Fortress to transport the gas to Jamaica, is making losses and restructuring to weather the soft LNG market.

JPS is largely foreign-owned by Marubeni of Japan and East West Power of Korea with equal stakes of 40 per cent each. The Jamaican Government holds 19.9 per cent.