KINGSTON Wharves Limited (KW) is seeking to raise $1.8 billion from Jamaica Producers Group (JP), in order to further prepare for the huge ships expected once the Panama Canal expansion opens in 2014.

The project will involve the demolition of two to three warehouses (to be relocated) and dredging to accommodate larger vessels at berths five through seven.

“Dredging is one aspect,” said KW’s CEO, Grantley Stephenson. “The steel pilings, which have been around since the mid 1960s wouldn’t go deep enough for dredging.” So new pilings will have to be driven into the harbour bed.

KW doesn’t have the gantry cranes used to handle cargo from large containerised vessels, so the company plans to focus on preparing for “larger feeder vessels”, even though when it tore down and rebuilt berths eight and nine it added tracks that could accommodate the gantry cranes in the future.

Expansion in anticipation of the widened Panama Canal started as early as 2006, when it introduced plans, then expected to cost US$26 million, to demolish berths eight and nine, dredge the piers to allow for larger ships and rehabilitate the two berths to the drawing table.

Paul Samuels, JP’s company secretary, said that the acquisition would be in line with strategic goals of his company, which was seeking to deepen its involvement into logistics.

At present JP, which is a founding shareholder of KW, has four fast state-of-the-art reefer vessels in service, which provide a reliable weekly service to Jamaica, the United Kingdom, the European Continent, Costa Rica, and the Dominican Republic. As such, the proposed investment will not only provide KW with secure long-term financing for port expansion and development, but will allow the cargo handler to benefit from JP’s participation and experience in shipping services and in the productive sector generally in Jamaica and overseas.

Perhaps, more importantly, JP has “adequate financial resources at its disposal, and is able to access required capital without recourse to financing arrangement that may be adversely affected by short-term movements in the Jamaican exchange rate or interest rates,” according to a notification to the Jamaica Stock Exchange (JSE).

Last May, JP announced its commitment to complete sales of locally held equities having a total value of $903.65 million, which would be used to support its planned investment and business development programme.

As a result, its current assets increased by $1 billion to $3.2 billion, while its $5 billion in equity as at October 1, 2011 dwarfed the less than $1 billion it had in liabilities.

In October, JP announced that it won a joint bid with Pan Jamaican Investment Trust to acquire Mavis Bank Coffee Factory, and then in December it announced the acquisition of 62 per cent of Tortuga International Holdings Limited.

A condition of the deal would be that KW’s articles of incorporation be changed to allow minority shareholders holding 21 per cent or more of the issued shares the right to appoint three directors.

Currently, a 51 per cent shareholding vote is required to elect all directors.

“The provision is intended to strengthen the rights of minority shareholders and allow for best practices in corporate governance,” said the proposal.

It also argues that the increase in value and benefits from the investment will more than compensate for the dilution that existing shareholders will experience.

National Commercial Bank, which owns 44 per cent of KW, will see its stake drop to 33 per cent, while JP, which currently owns less than one per cent of KW, will become the second-largest shareholder.

KW operates a range of terminal equipment across 260,000 square metres of open storage space, 24,000 square metres of covered warehousing and cold storage, and 53,000 off-dock storage for motor vehicles. KW terminal has a 1,655-metre continuous quay that provides nine deepwater berths for roll-on-roll-off, lift-on-lift-off, general break bulk, containerised cargo and bulk cargo vessels.

JP has offered to buy a 25 per cent stake, or 357.6 million new ordinary shares in the cargo handling firm for $5 a piece.

The average close price of KW’s share over the last 12 months was $5.15, and the stock closed yesterday at $5.80, up 12.6 per cent on small volumes — less than 3,000 shares crossing the floor of the exchange — since the planned acquisition was announced late Friday.

The offer price is based on the performance of KW over a period of time, according to Samuels, who was quick to point out that the offer was subject to approval or refusal by shareholders.

Stephenson told the Business Observer that the deal was only agreed late Friday, but now that the details are being prepared, he expects that shareholders will be notified of an extraordinary general meeting (EGM) date within a matter of days. The company’s articles of incorporation require that notification be a few weeks ahead of an EGM, so a meeting date and decision won’t likely happen before late February.