• Bank prices 50-NCB-share ADS at US$13-US$15, or 13 per cent higher than last closing price • Lee-Chin to sell 11 per cent of his shareholdings in IPO

BY CAMILO THAME Business Co-ordinator

Friday, January 25, 2013

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NATIONAL Commercial Bank Jamaica (NCB) is offering 20 per cent of the company to investors on the New York Stock Exchange (NYSE).

The bank aims to raise US$175 million through an initial public offering (IPO) that will require it to issue 25 per cent more shares, while its controlling shareholder, Michael Lee-Chin, stands to make US$50 million from the deal when he sells 11 per cent of his own shareholdings.

NCB said that it would combine 625 million new shares with 178.6 million of Lee-Chin's shares to offer just over 16 million American depositary shares (ADSs) — each ADS would represent 50 NCB shares.

It also expects that the initial public offering price will be between US$13 and US$15 per ADS, which even at the lowest range is 13 per cent higher than yesterday's closing price on the local exchange.

"We expect to receive total estimated net proceeds from this offering of approximately US$158 million, based on the midpoint of the price range," said NCB in its filling to US regulator, the Securities and Exchange Commission (SEC).

The offer price estimation was guided by the prices of the shares traded on the Jamaica Stock Exchange (JSE) and the Trinidad and Tobago Stock Exchange (TTSE), as well as, the exchange rates against the greenback.

NCB's ordinary shares closed at $21.40, or US$0.23 (less than the required US$1 minimum share price for the NYSE, which prompted the issue of ADSs), on Monday, while it closed at TT$1.40, or US$0.22 in Trinidad.

Consequently, 50 shares as of Monday would have been valued at US$11. Yesterday, the share price stayed the same on the TTSE, but it closed at $21.30 in Jamaica, while the US dollar was on average 20 cents (0.2 per cent) more expensive to buy, when compared to a week ago.

Devaluation of the dollar in recent times has resulted in another side effect, albeit unrelated to the IPO.

Lee-Chin has had to increase the number of shares he had pledged as security for loans from different lenders by 100 million shares, from 1.08 billion last May to 1.18 billion as of January 16.

Robert Almeida, executive director of AIC Global Holdings told the Jamaica Observer that a reduction in the price of the shares, along with depreciation in the dollar, prompted the increase in pledged shares.

On May 9, NCB's share price was $24.23, or 28 US cents at that time when it cost $87.54 on average to buy US$1, compared to $21.50, or 23 US cents on Monday, when the exchange rate was $93.30 to US$1.

At those rates, the amount of pledged shares were valued at US$300 million back in May, compared to US$270 million last week, suggesting that Lee-Chin cut his debt over the period.

Indeed, AIC global Holdings repaid a US$7-million loan to a subsidiary of Macquarie Capital (USA) — one of the underwriters — back in September.

Other loans owed by his holding company and its subsidiaries mature between September this year and October 2017.

"Mr Lee-Chin has advised us that he and his affiliates are in full compliance with the terms and conditions of these loans," said the filing to the SEC. "Mr Lee-Chin may, or may be required to, make additional pledges of ordinary shares beneficially owned by him in the future."

But the IPO will give him less room to pledge more shares.

Up to January 16, Lee-Chin owned, directly and indirectly, approximately 64 per cent of NCB's ordinary shares, but his stake will fall to 43.6 per cent of the company if the IPO is fully taken up.

Automatically, the number of shares he currently has pledged would represent 84 per cent of his holdings, providing that his debt remains the same and the price locally aren't revalued to the higher price, suggested by the ADS offer.

On the other hand, previous plans had required that AIC Global repay its loan to the subsidiary of Macquarie (already repaid) from the proceeds, which means that the possibility of further debt reduction can't be ruled out.

NCB is not entirely new to US-based investors. Up to Monday, 8.2 million shares, representing 0.3 per cent of the company, were held by 1,453 record holders in the United States.

The filing appears to suggest that a deposit agreement will be finalised next month, but the commercial bank can't and won't say when it expects the IPO to actually take place.

NCB said it plans to use the proceeds for "general corporate purposes, which may include funding organic growth through an increase in loan volume, portfolio investments and other income-generating activities; financing expansion of and improvements to our infrastructure; and pursuing potential future acquisitions and other strategic investments".

"We are unable to estimate the application of the anticipated net proceeds from this offering to our anticipated uses of those proceeds as of the date of this prospectus," said the bank in its filing to the SEC yesterday.

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