FINANCE ANALYST JON ABRAMS WARNS ON PORT INVESTMENT – Urges Extreme Caution

Dear Editor.

Kindly allow me some space to voice my concern(s) about what really are NOT attractive listings, private and BISX (public), existing and proposed in the Bahamas. 

Prior to BISX coming into existence, in the due diligence phase, at the time, the Government of the day (I recall late 90’s early 2000’s) was advised, as I recall, by Citigroup, that the Bahamas market was much too small to be profitable and thus should become a part of the broader Caribbean market, to stand a chance of being successful through choices of instruments to invest in, volume of shares to be traded and liquidity. As it turns out, Citigroup (or another advisor) was right and the Government of the day, absolutely wrong AGAIN. Ask any investor in BISX shares if they made money off of what I recall was $125,000 per seat and they will tell you absolutely NOT. They likely wrote off the value of their investment(s) in whole long ago. 

The Bahamas is a lovely country but it is a pebble in a pool. Very often it makes illogical decisions acting as if it is a behemoth. News flash, wake up and smell the roses. It is far from such. I like to say that if you want the right answer to many things in the Bahamas, just think of whatever does NOT make sense, and that’s it. 

Why would anyone invest in Bahamian instruments? Very few make money from them and with an investing public that has a mentality to buy and hold for the long term, where are the opportunities? Dividend income and capital gains are few and far between. Try to profit take in an illiquid market and in many cases you must wait forever before you can sell, and when you sell, it is normally at a discount to market to attract a potential buyer to purchase. What good does that do the seller? Timing is everything and if as a seller I cannot realize my investment and any capital gain etc. when I want to, why should I invest? 

If exchange controls were to be relaxed and investments allowed by Caribbean Citizens, BISX and the local market may stand a better chance to generate volumes and trading activity to make money. 

In an attempt to boost activity in hopes that BISX will be reasonably profitable, if at all, the current Government had to allow BISX to list Bahamas Government Registered Stock. These instruments come with many restrictions before one can sell. Just ask the Central Bank what they are. Why would anyone invest in B $? While they now offer rates as high as 7%, given the Government’s current challenges, there are thoughts of reducing the prime rate to which some or all registered stock is tied, in which case, the yield gets lower and lower. Beyond this, the largest subscribers to the Government’s issues are private commercial / retail banks and credit unions. They control the show and by threatening to push back if Government adjusts rates downward such that their interest risk assets compromise their net interest margins and ultimately, net profitability, just watch the unemployment lines swell because insufficient money stands to be made by them as a result of an adequate return on their invested capital. More importantly, the push back will be successful because if the Banks and others do not get what they want, then campaign donations dry up. 

BISX

 I invite any reader to look at trading volumes on BISX. Almost, if not zero “0”, on all listings. It takes forever to sell any listing. Not good. 

If the public is to make money on BISX, it must be a dynamic exchange. BISX is NOT. I reiterate, the fear of Government to relax exchange controls for public offerings to be transacted by foreigners, especially in the Caribbean, should be tempered. Why should one have to ask to bring money into The Bahamas then ask again to take it out on top of having to pay ridiculous conversion fees to do so? Bahamians generally are a people not of means so as regards impact on hard currency outflows from savings or in concert with foreigners, such would be minimal. 

For the most part, the only people who benefit from BISX or private listings are those who raise the capital they need (usually preferred share and bond holders) to engage the business activities they plan. The common shareholders, almost always in the minority usually get screwed and are left holding the bag. I think about Benchmark currently and City Markets of a few years ago. Ask Ortland Bodie about his fight as a minority holder in an issue whose name I am unable to recall. More people should have fight in them like Bodie. 

GLOBAL PORT HOLDINGS (GPH) 

Now comes the cry / plea for Global Port Holdings (GPH) to privately raise $130 million in first round funding. This, among other things, is a public relations exercise to suggest that if the money is raised, it will be successful in the public offering. My bet is that unfortunately it will be successful (hopefully not) and once again, it will be the principal shareholders who likely will have preferred stock and bonds, who stand to win. 

Neil Hartnell has not dug deep enough to allow the public to make an informed decision every step of the way as GPH moves to raise money in what ultimately is to be a $250 million investment. Dig deeper Neil. Be the Brian Ross of The Tribune. To be profitable, minimally GPB should generate for its greedy shareholders at least 10% in net earnings after taxes, of its investment. This translates to after tax earnings of $25 million or more annually as one moves from return on investment to return on equity. To generate $25 million annually as a % of gross revenues, gross revenues should approximate $250 million annually, the subject of which I speak to below, unless of course Government has given GPH the contractual and exclusive right to raise the $18 per passenger fee such that GPH and its greedy shareholders is / are almost guaranteed to always make money. 

Since we are in the era of full disclosure, conflict of interest free, honesty and good corporate governance, beyond other considerations which will evolve from or are stated herein, I encourage Neil Hartnell to do the following: 

1. Since he quotes certain details from the GPH private offering prospectus, why not publish the document in whole for the public to see? It’s already known that he has it.

2. If not “1”, establish an internet link through which those such as I who wish to see and examine its contents, can do so. 

Both points have the merit of allowing those in the public who may wish to consider investing in GPH’s public offering, to note the differences between the private offering and its projections for the public offering to see what in fact has taken place in reality when the public offering comes to market and to ask why the differences?

Personally, for the good of the public, if Hartnell does 1 or 2 or both, I will undertake to perform a financial and other analysis of the content of the Private and Public documents and benchmark against best practices to see how GPH lines up. I will send details for publication. 

For many BISX shares, banks and other lenders normally discount loan to value by minimally 50% because of the highly illiquid BISX holdings. Only God knows when any BISX Security will be sold, and if sold, the owner often takes a deep discount to market because the buyer knows that the seller cannot otherwise sell, or if they do, it will take forever for which the seller cannot wait because they need money because of liquidity issues. 

We know the following from Neil’s recent article (I may stand corrected on a few points): 

1. Investment – $250 million. $130 million of which is in the process of being raised. 2. $20 million to be paid out in professional fees, a decent portion of which will be paid to CFAL whom I recall is the underwriter. 

What we also need to know inter alia, and just for starters, is: 

1. How much of the $18 per passenger fee currently being charged (I suppose nothing right now)because the Cruise Industry is dead) will go directly to GPH and the Government.

2. Will collection of this fee be limited to the 30 year exclusive?

3. What are the exit clauses in the agreement?

4. What are the escalation clauses built into the agreement?

5. Who are the private shareholders – that is the ultimate beneficial owners each by name –individuals NOT companies or nominees?

6. How is it that these super deals always seem to be awarded to a select (few) group of people? CFAL, Providence Advisors (these 2 companies are rumoured to be tied together because its principals are very friendly with each other, if not best friends – it is thought that they bid on deals in concert with each other so that if one does not get it, and the other does, they both benefit), Symonette’s, Holowesko’s etc. whose principals seem to be appointed by the Prime Minister to almost all bodies of importance to run the Bahamas. Ken Kerr, Providence Principal, was just appointed Co-Chair of the COVID 19 recovery committee – not too long ago Providence Advisors was awarded an exclusive on The Ecology Park – Anthony Ferguson of CFAL is now the driver behind the GPH offering – too many coincidence represent the facts. Certainly in appearance they are in bed with Minnis). Are there not others who deserve the chance to be awarded these deals? Why only the same few all the time? Things that made one go hhhmmmm.

7. What are the recurrent management fees to be paid and to whom? 

It is mind boggling how these local agreements mostly doled out to Government cronies are shrouded in secrecy. Full disclosure is an absolute joke, conflicts of interest do not apply and journalists who are to conduct the investigatory work on the public’s behalf, fail miserably, or do not understand the depth of reporting commercial transactions to keep the public reliably informed. 

I ask, how many cruise ports have you seen as or know to be very profitable? I’ve travelled the world and seen many fancy ports, Dubai being among them, where frugal travellers who may spend $100 tops, mostly look but spend nothing. Even if they spend, the operating costs of the Ports are so high that the 

Ports cannot operate without a Government subsidy which effectively is the right to collect a hard currency per passenger fee, which in this case is $18 per passenger for GPH (before split with Government and payments to Government cronies and private shareholders for management fees etc. already concocted), to enrich the few? 

GPH’s facility stands to perform no better than the Straw Market. What the Bahamas lacks are real things to do outside of shopping. 7 million tourists (there will be a slow ramp up to this number in 2022) visit the Bahamas each year. That approximates 19,200 people per 365 day year. 80% or 15,300 are in Nassau on a daily basis. Let’s assume that there are 100 businesses who will share in this number, daily. This translates to 153 people per business per day. This being the case, let’s be generous and ask the question about whether it’s reasonable to assume that with Royal Caribbean Cruise Lines, Disney, Norwegian, Atlantis, Bahamar are all positioning to compete for this small 15,300 people daily. Is it likely that GPH will attract generously, half or even 25% of that? The answer I believe to be a resounding NO. Even if they do, simple math calculates that 7,560 (15,300 at 50%) daily or 2,792,250 tourists annually, each spending $100, results in gross revenues of $279.2 million (recall what I earlier said about generating $250 million in gross revenues). I say not a chance in hell will this happen. GPH will be lucky if they attract 1,000 people daily or 365,000 people and $36.5 million annually. Just maybe enough to be profitable but not sufficient to reward shareholders. Of course this does not include the $18 per head passenger fee GPH will collect whose allocation must be explained and for which they may have the right to increase the fee as they like. 

I realize that I may be wrong in all that I suggest but fact of the matter is that these are the kinds of questions and mental stimulants / thoughts that must take place and be answered before investing in GPH. The public has a right to know, NOW. 

Let’s also assume that 5 million passengers are baseline projected to come to Nassau. Simple math says that GPH will collect $90 million each year before any split with Government and others. If they get this money on a recurrent basis for 30 years, with the right to increase, why do they need public money to expose the public to effectively what may be a bad investment? Neil Hartnell, get to it and blow the lid off of this deal so that if private and public persons invest, they cannot say they did not know because they were forewarned. The prospectus no doubt tells a glorious story. What people must remember is that actual results often differ materially so from projected results. I suggest that before anyone invests in GPH, they have a professional accountant raise questions for you to be asked and get answers to so that the public can be informed. If no answers then NO INVESTMENT. Stay away. 

I remind the public of the CLICO debacle. Recall the result when in I think 2005 CLICO announced it was paying an interest rate of 12% which influenced many to move their money to CLICO only to get BURNED? From 2009 to date, folks are still trying to be made whole as the Government continues to not do its part because of the Insurance Commission’s failure to make policyholders and other creditors whole. 

The 12% rate then was 3 to 4 times higher than what established Banks were paying on deposits. I say this to say that the 8% rate (high above market rates reflect higher risk) which GPH is offering is well above current market, including Bahamas Government Registered Stock (now about 6% after rate adjustments tied to prime, drop). My point is, be cautious with the GPH offering now while private and all the more if and when it goes public. History may repeat itself. We do not want another CLICO. 

There is an aphorism which states, “If it’s too good to be true, it probably is!” You may want to consider staying the heck away. Remain in cash or invest in real estate or take your money outside of the country. When the Central Bank lifts exchange control restrictions on investment currency after this COVID 19 crisis, it’s cheaper to pay a 5% investment dollar premium on investment dollars, and invest the 95% in foreign markets where there are LOTS more opportunities in liquid markets and your returns, placed in the right instrument(s) (take sound professional advice), will likely by far exceed the 5% lost when you purchased investment dollars from the Central Bank. 

Personally, I will NOT invest a dime in Global Port Holdings. Let them raise private money the best way they can. 

Thanks for the space. 

John Abrams