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KWL-JP deal 'not in everyone's interest'

Published:Wednesday | March 28, 2012 | 12:00 AM
  • John Jackson pushing for rights issue instead

Financial analyst John Jackson warned Tuesday that shareholders in Kingston Wharves Limited (KWL) could see their interest diluted if the company proceeds with a plan to issue new shares to facilitate a deal that will give Jamaica Producers (JP) a bigger stake in the port company.

Jackson's warning via a press release came two days ahead of the March 29 vote to increase KWL's share capital.

The directors of Kingston Wharves are being urged to withdraw the resolution to create and allot a block of newly authorised shares to Jamaica Producers Group Limited, which is buying an additional 25 per cent stake in KWL.

The offer should be structured for the benefit of all shareholders, Jackson said in the press release provocatively titled 'Are shareholders about to be abused again?'

Shareholders will be asked on Thursday to approve two resolutions: to increase the company's share capital from J$230 million by the creation of 357.55 million shares valued at $0.20 each; and the allotment of the new shares to Jamaica Producers without the need for any rights issue or invitation to subscribe for the same being made to existing shareholders.

"What the directors will put forward are resolutions that, if passed, will dilute present shareholders' value for a long time, without giving them an opportunity to participate in owning more shares from a proposed major increase in the share capital," Jackson said.

Jamaica Producers' offer is priced at J$5 per share. The offer is 15 cents below the current trading price of KWL.

"Shareholders should not vote for one of the resolutions if they are smart and concerned about equality for the minority shareholders," said Jackson, who is a noted stock market expert and publisher of Investor's Choice magazine.

Chief executive officer and interim chairman of Kingston Wharves, Grantley Stephenson, was unavailable when Wednesday Business sought comment.

Advice sought

Kingston Wharves directors got Deloitte Touche Tohmatsu Limited to advise them on both the valuation of the company's shares and the pricing of a rights issue and, "importantly, they say that a rights issue is usually at a discount to the stock price," Jackson acknowledged.

The analyst, himself a shareholder in the port company, also acknowledged that "this is the norm", but insisted that "it need not be, as there are no rules that state that it must be so".

He added that "under the circumstances that Jamaica Producers is investing in KWL, it would be a great way to ensure fairness and equity for all if the directors changed their minds and withdrew the resolution as it pertains to a rights issue, and instead decide to offer the shares to all existing shareholders."

Jamaica Producers already holds at least 6.6 million shares or 0.62 per cent of the port company, making it a top-10 owner. It is seeking to invest more than J$1.7 billion to acquire the 25 per cent stake as well as seats on the board.

According to Jackson, "that seems like a great case to offer a renounceable rights issue with those shares not taken up being bought by JP as a de factor underwriter."

By offering a renounceable rights issue it would also increase the liquidity of the stock — a point the valuators raised, he said.

"What is being done will not enhance the tradability of the stock but reduces it and is likely to lead to a reduction in the value," the release quoted Jackson as saying.

Jackson told Wednesday Business he has not communicated his concerns to the Kingston Wharves board, but was seeking to sensitise shareholders that they did not have to go the route being offered.

National Commercial Bank currently owns the largest block of shares in Kingston Wharves, 360.8 million units or 33.64 per cent of over 1.07 billion units; Kingston Port Workers holds 169.13 million shares or 15.77 per cent, and the Shipping Association of Jamaica 168.99 million shares or 15.75 per cent.

In a joint disclosure to the Jamaica Stock Exchange (JSE) in January, Jamaica Producers confirmed that it may seek to acquire additional shares from third parties and/or sell shares from time to time, but said it has no interest in acquiring a majority or controlling interest in Kingston Wharves, nor holding less than 21 per cent of the shares.

TERM OF PROPOSAL

A term of the proposed transaction is that Kingston Wharves' articles of incorporation be amended to allow minority shareholders holding 21 per cent or more of the issued shares the right to appoint up to three directors, according to the January market filing.

The current articles allow a 51 per cent shareholding vote to elect the directors. The amendment is being sought "to strengthen the rights of minority shareholders and allow for best practices in corporate governance", the companies said at the time.

Kingston Wharves traded at J$5.15 on the JSE on Tuesday.

mcpherse.thompson@gleanerjm.com