I would wish to request that you allow me the opportunity to contribute to your editorial page concerning the offering of Kerzner International Shares in the Bahamas. I hope that my contribution on this subject will provide some assistance to those who are seeking to advance the development of the financial services sector of The Bahamas as well as those who might wish to invest in the offering.
Since I believe the subject matter is one with multiple issues which services different initiatives I will present my comments and questions in three categories which I hope will service the needs of all concerned. These categories will be as follows a) Policy b) Mechanics and c) Investment Decision.
Policy
The decision of the government to request in its heads of government agreement with Kerzner International (KZL) the offering of shares to the Bahamian public is without a doubt in my mind one of the most significant long term positive decision this administration would have made on behalf of the people of the Bahamas. This I believe is true because for the first time in our negotiations with foreign investors we the people have sought not only participate in the venture as laborers but also as investors. However, I believe that the government made a few tactical errors when negotiating the deal. These errors relate to the following;
1. Why when negotiating the deal for shares in KZL the government did not offer a larger concession on duties in order to secure the shares at a discount from the current trading price. The current deal has the Bahamian public giving up over B$ 150 million in concessions as well as paying market price for the shares contributing and additional 40-45 million dollars to KNL so in actuality we the people are giving up between 150-200 million in concessions.
2. Why after negotiating the deal the government did not take delivery of the shares and then determine how it would distribute them to the market allowing the proper development of the BDR concept at the pace in which the Bahamian public can absorb.
3. Why did the government not determine a value for the BDR during its negotiations with KZL.
Mechanics
This area I am most distressed over it would appear that The Securities Commission of The Bahamas (SCB) completely dropped the ball and The Bahamas International Securities Exchange (BISX) is non existent in the process. I am saddened to see that the regulator appears to be placed in a position that would suggest that either it was acting on directives from high or it does sloppy work whatever the reasons they need fixing urgently. Our foreign dictators will soon say that like the Central Bank was now it’s the SCB and demand accountability. My questions are;
1. If Mr. Butch Kerzner made the announcement on Monday 7th June about his offering how is it now that the offering is held up by Cabinet and that the Minister of State is raising questions and concerns about the offering.
2. How is it that after the statement in the Tribune on Friday 11th June made by the Minister of State for Finance Mr. Kerzner and Fidelity continue their program as though there were no concerns by the government or the Securities Commission of The Bahamas.
3. Why does it appear that the rules which are required to be followed seem to have different meanings depending on the issuer.
4. What happen to investor education and the drive of the SCB to ensure that in a developing market this is given the highest priority particularly given the sophistication of this particular instrument.
5. What happen to BISX has anyone seen BISX cannot find Jerry Roker in town. It is their platform that KZL – BDR will trade on but since the announcement BISX has not made one statement about how the shares will trade over their platform. There are some basic questions which can be answered and then there are the more difficult ones which will need discussion and feedback before implementation.
6. I understand that the broker on this offering has made a request of the regulator to have deposited with them 15% of the float for KZL. This represents 150,000 shares or 6.7 million US Dollars. Is the broker going to place a deposit with the regulator or will the broker just have the shares deposited in their account without taking any risk on capital. Who will monitor what the broker is doing with the ﾠﾠdeposit of KZL shares. I understand that this request was done to ensure liquidity on BISX should Bahamians sell in large volume does that represent the retirement of those BDR shares or will the broker be allowed to purchase those shares again should a ﾠﾠbuyer emerge before a seller. ﾠCan the broker get margin on the shares deposited under the US Securities rules no problem any stock with a value above $5 is eligible for margin at the request of the holder, which now makes the liquidity 3.35 million before one share is sold. Therefore, the broker can position against the BDR without selling one share of KZL please note without risk of capital.
7. How will announcements made by Kerzner International be distributed in the Bahamas or should the Bahamian investor look to Wall Street as the source of information.
8. Why is it necessary for the BDR to have a multiple of 10 to 1 for KZL will the investor understand that the price action of the BDR will be diluted and as a result he/she will not be receiving the same real price action of ﾠKZL as represented on The New York Stock Exchange (NYSE). This in my view can cause a major misrepresentation to the Bahamian investor who will not realize that the .10 movement in his BDR is really a $1 movement in KZL shares on the NYSE.
9. I have been asked the question can Bahamians buy fractional shares of KZL my answer to the question is no you must buy the BDR in lost of 10 and not 12,21,33 etc. When explaining why this should not occur (because you cannot buy fractional shares on The New York Stock Exchange) I was told that the broker on the deal indicated that this would be possible. If that is true I believe a clear explanation as to why should be forthcoming. If I am correct then what is the difference in money value between 1 shares of KZL @ $45 or 10 shares of KZL-BDR @$4.5.
10. Is KZL issuing a 10B18 which means KZL bough its shares out of the market ﾠand is now reselling those shares. If this is true under US rules these shares would only be available to accredited investors those with significant net worth.
11. Is the Cabinet Of The Bahamas the new regulator for the securities industry of The Bahamas, which means the SCB is now located at The Church Hill building.
Investment Decision
There are many reasons one can find to support a decision to invest in any venture but for me the most important is my ability to understand and rationalize why a company and its leadership believe in the project and the people behind it. Certainly one can support the view that Kerzner International fits this rational but one could also support the view that these attributes are already represented at the current share priceﾅ.only time will tell. For those new investors in this game of international wealth creation please note that in the world of ﾠstock trading for every winner there must be a loser and for every buyer there must be a seller lets make sure that we do not lose 45 million dollars of our hard earned Bahamian capital to the global arena. Here is wishing you all the best of good buys.
Julian Renaud Brown
