Thu | Sep 21, 2017

Phoenix issues bond to pay for Petcom, taps Howard Hamilton as chairman

Published:Friday | July 15, 2016 | 7:00 AMNeville Graham
A Petcom service station in Kingston.

Two-thirds of the acquisition cost paid for Petroleum Company of Jamaica Limited and its assets by Phoenix Fuels were funded by a bond issued in three tranches at the end of June, amounting to $1.6 billion.

Other financing in the form of a bank loan came from First Global, according to Steven Whittingham of GK Capital Management, the financial adviser for Phoenix on the deal. Both GK Capital and First Global are members of the GraceKennedy conglomerate.

Meantime, a new board has been installed, led by Howard Hamilton.

The bond placement, arranged by Sagicor Investments Jamaica Limited, was done through Petcom Holdings Limited, a company created by Phoenix and registered in St Lucia on May 6 of this year to execute the acquisition of Petcom. Whittingham said the bond issued on June 27 was fully subscribed.

The first tranche is fixed at nine per cent; the second is fixed at nine per cent for two years, then varies at the three-month Treasury rate plus 3.5 per cent; and the third tranche has a fixed coupon of 9.25 per cent for three years, then pays interest at the three-month Treasury rate plus four per cent. They mature in stages between 2018 and 2023.

Debt-servicing account

Documents seen by the Financial Gleaner indicate that Petcom Holdings is required to maintain a bank account at Sagicor Bank Jamaica holding funds equivalent to at least three months' interest payments on the bonds.

Phoenix, which is owned equally by Collin Karjohn and daughter Kristal Karjohn, paid US$19 million ($2.3 billion) for Petcom. The sale closed on June 30.

Phoenix Fuels and Accessories Limited commenced operations less than three years ago in October 2013. It's in the business of storage, transportation and retailing of petroleum products. Before buying Petcom, the company operated just two service stations - in Portmore and Twickenham Park, both in St Catherine. The latter operates under the Petcom brand.

But the purchase of Petcom now makes it the fourth-largest player in the market with an estimated 12 per cent share behind GB Energy/Texaco 18 per cent; Total Jamaica 23 per cent, and Rubis Jamaica 32 per cent. Petcom also holds 18 per cent of the cooking gas or LPG market. That market is dominated by Massy Gas with an estimated 42 per cent share, and IGL with 40 per cent, according to Petcom Holdings offer document for the bonds.

Plans for integration

The acquisition of Petcom gives the Karjohns a network of 22 retail petrol outlets, eight of which are company-owned but dealer-operated; 14 LPG filling plants for Cookie Gas distributed nationally through at least 400 sales points; PACE lubricants; and real estate properties previously owned by Petcom's former parent, Petroleum Corporation of Jamaica, but utilised by the marketing company.

Efforts to interview the Karjohns on plans to integrate Petcom with the current operations of Phoenix have been unsuccessful. However, the information memo issued to prospective subscribers to the bond placement indicates the company will immediately execute a five-year strategy developed with the assistance of GK Capital.

In the first six months after acquisition, Phoenix will reorganise 'internally', a plan that includes 'dealer realignment' as well as the appointment of a new board and management restructuring.

The new board introduced to staff on July 4 comprises seven members - racehorse owner and one-time head honcho at Shell Howard Hamilton as chairman; Collin Karjohn as deputy chairman; Johannes 'Yoni' Epstein; Custos of Clarendon William 'Billy' Shagoury; Dean 'Deano' Peart; Kristal Karjohn; and Seprod CEO Richard Pandohie.

Up to this week, there were no staff changes. Godfrey Boyd remains as acting general manager and the rest of the management team remains the same.

In the second phase of reforms, spanning a year, Phoenix plans to take over some dealerships by migrating unspecified 'company-owned dealer-operated' stations to 'company-owned company-operated'. In this phase, it will also restructure the pricing policy for fuels and cooking gas and insource haulage of the gas it sells.

The rest of the plan - spanning three and a half years - focuses on cost efficiencies and growing the business.

neville.graham@gleanerjm.com