NATIONAL Road Operating and Constructing Company Limited (NROCC) got a significant boost last week as it was announced that NCB Capital Markets Limited (NCBCM) would underwrite $1.83 billion of the TransJamaican Highway Limited (TJH) offer for sale which has a $9-billion target.

NCBCM, the lead broker for the transaction, will now underwrite or guarantee to purchase approximately 509,409,000 TJH ordinary shares being sold by NROCC. This underwriting component will only apply to strategic investors or investors who apply for the reserve pool of the public offer. This means that in the event the reserve pool garners less than expected demand relative to the one billion shares made available for strategic investors, NCBCM will purchase the remaining balance. The underwriting amount is equivalent to 72.7 per cent of the reserve pool, assuming the offer is not upsized.

NROCC is currently engaged in a capital market offer where it is seeking to raise between $6.30 billion by offering 1,750,700,00 TJH ordinary shares, subject to an option to upsize the offer and sell a total of 2.501 billion TJH ordinary shares for a target amount of $9 billion. According to an addendum published on Friday, NROCC engaged NCBCM for underwriting services under a March 3 agreement. NROCC is a government entity and will receive all the proceeds from this public offer, which doesn’t result in dilution to existing TJH shareholders.

This is the second time NROCC has utilised underwriting services for the sale of TJH shares. When NROCC was selling shares of TJH in January 2020 for TJH’s initial public offering (IPO), NCBCM and Jamaica Money Market Brokers Limited (JMMB) underwrote 6.375 billion shares ($8.99 billion) or 79.69 per cent of the total offer value. That offer for sale garnered $25.12 billion in subscriptions and is the largest public offering on the Jamaica Stock Exchange (JSE) to date.

This current offer for sale officially opened on March 4 and is set to close on March 18. An investor that buys the Jamaican-dollar (JMD) shares will need to purchase a minimum of 1,000 shares at $3.60 ($3,600), with increments in 1,000 units, while investors purchasing the United States-dollar (USD) shares will need to purchase a minimum of 100,000 units at US$0.0228 (US$2,280), with increments of 10,000 shares (US$228).

This is a discount for investors applying for the offer since the stock closed on Tuesday at $3.91/US$0.0243. TJH’s shares got a boost after it was also announced on Friday that TJH’s board of directors would consider the first interim dividend at a March 17 board meeting. If investors were to be allocated their shares before the record date of the dividend, they would benefit from that dividend. TJH paid $0.1895 per share in dividends during 2024.

Clients and non-clients of NCBCM can apply on NCBCM’s GOIPO (https://goipo.jncb.com/) platform for the offer while JMMB clients can apply directly on JMMB Moneyline, while non-JMMB clients can apply on JMMB Moneyline IPO (https://moneylineipo.jmmb.com/). Also, Sagicor Investments Jamaica Limited was recently added as a selling agent for the public offer, with investors able to apply on Sagicor eInvest (https://einvest.sagicorjamaica.com/home).

Brokers greenlight offer

Three brokers have recommended outright that their clients participate/buy in to the TJH offer for sale. Sagicor Investments Jamaica gave the highest target price of $6.30, based on a comparative market approach and the discounted cash flow model. Some of the positives highlighted in the offer include the strong revenue model, the toll rate hedge against devaluation, enhanced connectivity and traffic growth, and cost efficiencies from the Jamaican Infrastructure Operator Limited (JIO). Bouygues Travaux Publics, the former owner of the 49 per cent stake in JIO, exercised its put option on December 11, but the transfer of shares at the Companies Office of Jamaica was not completed at the end of 2024.

“TransJamaican Highway Limited (TJH) is poised for continued growth, supported by robust traffic levels, annual toll tariff adjustments, and operational efficiencies. With a stable balance sheet, declining debt levels, and healthy retained earnings, TJH is in a strong position to sustain dividend distributions while reinvesting in infrastructure upgrades. The company’s ability to generate stable cash flows and maintain a solid Debt Service Coverage Ratio (DSCR) of 3.04x underpins its financial resilience,” stated Sagicor Investments.

JN Fund Managers Limited (JNFM) gave a buy recommendation with a $4.56 target price which was based on positives such as the high free float of the TJH shares, population growth and urbanisation, low correlation to traditional asset classes, and strong earnings to facilitate regular dividend income.

“Investing in TJHL is advantageous due to anticipated strong traffic flows and the expectation that motorisation and housing development trends in the surrounding areas will persist. Additionally, as infrastructure assets display lower correlation to other asset classes, it provides great diversification benefits in a portfolio scenario. Further, as the Concession Agreement includes an indexation to the US CPI, it may also provide a hedge against inflation,” JNFM stated.

Barita Investments Limited (BIL) gave a target price of $4.48, based on a discounted cash flow method, with a recommendation that investors participate in the offer and with the stock retaining an overweight recommendation from the broker.

“With an estimated cost of equity of 10.71 per cent, we determined a price target of $4.48 within the next year, compared to the offer price of $3.60. This represents an upside potential of approximately 24.31 per cent. Please note that this analysis does not include the potential impact of the concession agreement for the Phase 1C leg of the highway, pending further clarity on the traffic profile and expected cost structure,” stated BIL.

Scotia Investments Jamaica Limited (SIJL) did not state a recommendation on the TJH offer for sale, however it determined a fair value of $4.62 but a target price of $4.07. NCBCM’s research team stated a target price of $4.43/US$0.0282 and a participate recommendation for investors.