TransJamaican Highway’s initial public offering

(IPO) will be the biggest in Jamaica’s history going on the market on February

17, seeking to raise upwards of US$100 million or J$14.1 billion.

It is noteworthy that the cost per share is

J$1.41 or US$0.01, which runs counter to the initial assertion by the

government to keep the price as low as the Wigton Windfarm IPO to encourage the

widest participation from the Jamaican investing public. The Wigton Windfarm

IPO last year came in at J$0.50.

The prospectus containing the details of

the IPO is now posted on the website of the Jamaica Stock Exchange (JSE) gives

a closing date of March 9. The initial number of shares being sold in the IPO

is eight billion to raise US$80 million or J$11.2 billion.

However, the National Road Operating and

Constructing Company Limited (NROCC), which recently acquired full ownership of

TransJamaican is reserving the right to upsize the offer for an additional two

billion shares to increase the offer to 10 billion shares to raise US$100

million or J$14.1 billion.

TransJamaican Highway holds a 35-year

concession for the Highway 2000 East-West toll corridor comprising a

43.5-kilometre stretch between Kingston and May Pen, Clarendon, with a

connection through Spanish Town, St Catherine, and a 6.4-kilometre stretch that

runs between Kingston and Portmore.

NROCC’s purchase of full ownership of

TransJamaican from its previous owners, a consortium comprising the French

construction firm, Bouygues Travaux, and Vinci Concessions of France along with

the Washington-based International Finance Corporation, the private

sector-funding arm of the World Bank and Société de Promotion et de

Participation pour la Cooperation Economique SA of France was done through

Bridge Notes arranged by NCB Capital Market.

Use of proceeds of the IPO

The proceeds of the IPO to repay the debt

in respect of the Bridge Notes, the proceeds of which were used to purchase

TransJamaican, while NROCC and the Ministry of Finance & the Public Service

will decide on how the balance is to be utilised. Funds from the IPO will also

be used pay for the offer for sale and listing expenses.

One of the primary objectives of this offer

for sale is to promote direct public ownership by ordinary Jamaicans of key

strategic assets of the country.

The prospectus has stated that an

investment in the company based on the current offer price is expected to yield

an Internal Rate of Return (IRR) of 13% to 14%. This is above the benchmark for

brownfield toll roads which ranges from 8% to 12% based on industry studies.

Value proposition

According to the prospectus, “this offering

presents a unique opportunity for investors to participate in the ownership of

the first toll road, an integral piece of Jamaica’s infrastructure with key

investment highlights being the attractive traffic profile with strong, stable

historical traffic volumes and gross toll collections. In the last seven years,

historical traffic and toll collections data for the Toll Road reflect sustained

growth with limited volatility. We expect that Jamaica’s current traffic

profile combined with its projected positive outlook will result in a steady

increase in demand for safe and efficient transit options and increased traffic

flow on the Toll Road.”

TransJamaican Highway boasts consistent financial performance

TransJamaica has a strong historical

financial performance, with revenues of US$52.4 million and Earnings Before

Interest, Taxes, Depreciation and Amortisation (EBITDA) of US$34.7 million for

the year ended December 31, 2018. This represents a compound annual growth rate

of 10.7% and 15.8%, respectively between 2014 and 2018.

As a result of operational improvements in

the last five years, operating expenses have increased at a slower rate than

revenues, allowing EBITDA margins to increase from 55.2% in the year ended

December 31, 2014 to 66.1% in the year ended December 31, 2018.

The year-to-date performance to September

2019 indicates that the EBITDA margin is 65.1%. The financial performance of

the Company is expected to further improve due to several factors such as

improved traffic projections with an expected average growth rate of

approximately 2.3% over the rest of the concession period.

This is supported by a study done by Steer

Davies Gleave Incorporated in December 2019. TransJamaican has been in

operation for over 18 years and so the risks associated with the Toll Road have

been identified and managed.

Refinancing existing debts

The company has no mandatory major capital

expenditures apart from periodic and routine maintenance until 2034.

Concurrently with the IPO the company has started the process of refinancing

its existing long-term debt.

The refinancing was triggered in part by

change of control provisions as well as the ability to obtain more favourable

terms such as lower financing costs, release of certain restrictive debt

service covenants resulting in more funding being available for operations and

distribution to shareholders.

This is in addition to an extension of debt

maturity period beyond 2029 under the immediately preceding debt structure.