Carib Cement agrees to end operating lease
Investment house Mayberry Investments expects the performance of the Caribbean Cement Company (CCC) to improve with the deal to buy back its assets from immediate parent company Trinidad Cement Limited (TCL).
"I expect the earnings to be impacted positively. As you are aware, it was one of the things we were lobbying for," stated Gary Peart, chief executive at Mayberry, in emailed responses to Financial Gleaner queries.
Carib Cement on March 16 signed a memorandum of understanding with its parent company, TCL, agreeing to terminate an operating lease agreement originally dated July 2, 2010.
The three-pronged deal will see Carib Cement acquire US$118 million worth of assets on its books. It will eliminate billions of dollars it spent annually on its lease arrangements, but could see a rise in finance costs depending on the method of acquisition.
The deal also involves the redemption of an aggregate number of 52 million preference shares issued by Carib Cement to TCL in 2010 and 2013 for some USD$40.5 million to be paid over a nine-year period starting in 2018. Such funds will be sourced from at least one-third of Carib Cement's profits available for distribution from the previous year. The financing options to fund the asset acquisition and the redemption are yet to be disclosed.
"This arrangement is a remarkable milestone for Carib Cement in the context of creating a stronger and more transparent balance sheet. It has been one of management's top priorities since the company's last annual general meeting at which shareholders were given the commitment that the best structure would be identified to acquire ownership of the assets," according to CCC general manager, Peter Donkersloot Ponce.
A special advisory group, including representation from Carib Cement minority shareholders, was subsequently put in place for that purpose, added Donkersloot.
The definitive agreements in relation to the transactions are expected to be executed by TCL and CCCL within 90 days from the date of signing.
Carib Cement announced in mid-2017, through its then newly appointed general manager that it planned to refinance its hefty operating lease for the Rockfort plant in Kingston. The operating lease is payable to TCL and costs the company billions of dollars annually. Both CCC and TCL are now owned by Cemex of Mexico. Carib Cement is projected to pay roughly $2.8 billion as operating lease for 2017 for the assets it owns at Rockfort. It paid $3.3 billion in 2016.