Energy storage company Tropical Battery has plans to conduct an additional public offering (APO) around June this year to clear some of the debt it has accumulated with its recent purchase of US specialty battery maker, Rose Electronics Distributing Company or Rose Batteries.

Amid announcing the name of the acquired company on Wednesday, Managing Director Alexander Melville said that Tropical Battery’s board is currently weighing two options to reduce the debt it has accumulated from the recent purchase of the 60-year-old company, one being a long-term, low-interest loan facility or to conduct an APO.

“Ideally, if we could do a long-term, low-interest loan facility, it would be best for all shareholders, but I don’t have anything guaranteed that allows us to do that. Most likely we will proceed with the APO, and it looks like we will have to migrate to the Main Market,” Melville said in an online interview.

On Thursday, shares of Tropical Battery ticked up 2.53 per cent to $2.43 per share. The company has a market capitalisation of $3.16 billion based on issued shares of 1.303 billion. Its audited results are still pending, but as at June 2023, Tropical Battery had share capital of $160.7 million, which means that it can raise no more than $339.3 million to remain within the Junior Market limit of $500 million in share capital.

The company, which was listed on the Junior Market of the Jamaica Stock Exchange in 2020, still benefits from full income tax exemption and would not become eligible to pay half the income tax amount until 2026. However, if it migrates to the Main Market, it would be required to pay the full corporate tax amount of 33 1/3 per cent on profit.

“The good news is, US and Jamaica have a double taxation treaty, so I can offset tax paid in the US with any tax that becomes applicable on the Main Market,” the MD said.

Tropical Battery succeeded four other companies in the bid for Rose Batteries, a company that has been producing batteries for high-value B2B customers for over 64 years in several industries, including health care and aerospace. Prior to the acquisition, Tropical Battery USA only operated an online store on e-commerce giant Amazon.

It would ship its products such as the Tropical brake fluids, engine oils and coolants to Amazon’s warehouse after which they would be packaged and delivered by Amazon.

“We now have a physical location. We also have a business that we can leverage to get the Jamaican products into the US, distribute from, and vice versa.

“So when we look at the US, Dominican Republic and Jamaica, collectively it’s one really big market and so if we get our product mix correct and not just do specialty batteries, but the distribution of batteries and maybe even installation of solar systems, we can tap into huge opportunities,” Melville said.

The purchase of the US-based company marks the second acquisition within the group of companies in one year. Last February, Tropical Battery announced the purchase of a 51 per cent stake in Dominican Republic-based solar energy business KAYA Energy Group.

The cost of the transaction has not been disclosed but Melville said the acquisition was made using some equity from Tropical Battery and largely bank financing through preference shares and bridge loans.

The deal was underwritten by investment firm Sygnus Capital.

“We had to close within a specific time frame and we weren’t able to do a rights issue or APO or anything like that. So we decided to go with some equity from Tropical Battery, but our ultimate goal is to do an APO or list some of it because obviously, we took on some debt to do the transaction,” Melville said.

“In the US if you have agreed timelines, it’s important that you hit those timelines. Luckily, we did, but it was close to the wire,” he added.