Barita Investments, which will list on the Jamaica Stock Exchange (JSE) in two weeks, raised only 40 per cent of the capital it targeted from an initial public offer.

Investors reacted lukewarm to the ordinary shares that were offered, taking up only 23 per cent of the stock, while the market snubbed Barita’s Series B preference shares — less than seven per cent were bought.

According to Barita General Manager Ian McNaughton, who described the IPO as “moderately successful”, the offer raised $430 million in capital.

“The series B Preference shares, the response to that was not very good and the ordinary shares, we had a 22-23 per cent take up,” McNaughton told The Business Observer. “Overall, on all three issues we had about a 41-42 per cent take up of the total issue.”

Barita’s Series A preference shares — a redeemable preference share — were, however, fully subscribed.

This means that the company raised $300 million from the Series A shares, $110 million from the ordinary shares and approximately $20 million from the Series B shares.

On December 7 this year the stock brokerage house made available to the public, 200 million ordinary shares at $2.50 a share, 100 million redeemable preference shares and 100 million convertible preference shares (to be converted to ordinary shares November 2012) at $3.00 a share.

By McNaughton’s reckoning, the Series A preference shares, which were fully taken up, proved to be a good buy.

“A 16 and a half per cent return on a preference share would have been in hindsight very good with declining interest rates and interest rates threatening to decline even further,” he said.

But investors may have reacted negatively to the Series B preference shares in light of being locked into an arrangement in which shares would be converted to ordinary shares after three years.

“Apart from the mandatory convertible aspect, which people might have had an issue with, that was also a good investment option, because 12 per cent at a nil tax rate is grossed up at mid-16 per cent and hence it was also a good option,” he said.

But unlike the Series A preference shares, which will be redeemed within three years and which are to be repriced every six months at 1.75 percentage points above the weighted average treasury bill rate, the Series B preference shares is repriced at the lower of the six-month t-bill rate and 12 per cent. This means that the return on the preference shares will be capped at 12 per cent, while it may fall lower.

What’s more, holders of the Series B shares will have to give up a number of preference shares — valued at $3 a share — equal in value to one ordinary share priced at the greater of $6 or six times earnings per ordinary share (EPS).

EPS now stands at 22 cents per share, using the last 12-month net profit reported and the current shares in issue, while ordinary shares were issued at a price of $2.50 a share.

With the unlikely event of Barita increasing its net profit fivefold by November 2012, Series B preference shareholders will have to give up two shares for one ordinary shares. This means that the price of Barita’s shares will have to rise by more than 140 per cent for investors to make back their principal when the shares are converted.

McNaughton blamed the low take up of the shares on circumstances in the environment which he said was “not that conducive based on the perceptions of the investors, particularly the institutional investors”.

He believes, however, that “the positive publicity was also an additional benefit from the IPO”.

“The IPO was not oversubscribed but we are pretty pleased with the results”, McNaughton said.

The IPO was projected to raise $1.1 billion for the company to list on the JSE main market.

The $430 million generated, according to McNaughton, “has allowed us to achieve the threshold to list so we are going to be a listed company”.

Barita will be listed on the Jamaica Stock Exchange (JSE) on January 14, 2010.

The minimum listing requirements for the JSE indicates that the company must be capitalized with over $500 million or 20 per cent of the issued ordinary share capital held by a minimum of 100 shareholders.

Before the issue, 340.2 million shares, or 84 per cent of the 405.7 million ordinary stock units were held by the company’s chairman Rita Humphries-Lewin with the remaining 16 per cent shared among eight individuals.

The nine shareholders, among them, gave up 20 million shares while 180 million additional shares were made available to the public.

Based on McNaughton’s pronouncement, the public took approximately 47 million shares, which implies that the total shares in issue will has increased to 452.7 million, with the chairman holding 71 per cent.

The remainder of the shares not taken up during the IPO will be available for purchase from the Treasury after the company lists January. Additionally McNaughton says that Barita is still a profitable company, with a focus now on capital investments and other business lines.

“Barita will continue along the path that it has developed all these years being a very prudent company, profitable and we are going to be expanding our business offerings with individual retirement accounts, providing opportunities for our clients to invest in US (United States) securities, and primarily shoring up our capital base to enable us to delve further into equities and securities markets,” he said. “Going forward we expect to see some sort of renewal in interest in the stock. And hopefully the demand for treasury stock will prove that it is as good an option as we thought.”

Barita is licensed by the Financial Services Commission, the Bank of Jamaica and the Jamaica Stock Exchange and is involved in equities trading, fixed income securities, foreign currency trading, asset management and investment research. The Barita Group is comprised of Barita Investments Limited and Barita Unit Trusts Management Company Limited,