Banks DIH defends price paid for repurchase of shares

-82% from cash, 18% borrowed

-`consideration for the transaction was stated to be in Guyana dollars’

Banks DIH Limited (BDIH) has defended its $5.5b repurchase of its shares from a Barbados company saying that the amount paid was based on a 2015 valuation conducted by PricewaterhouseCoopers (PwC).

In an advertisement in yesterday’s Stabroek News, Banks DIH was responding to a December 11, 2016 letter in Stabroek News by business analyst Christopher Ram.

Referring to the repurchase of the shares from Banks Holdings Limited  (BHL) of Barbados, Ram asked “Why pay $36.79 per share to BHL for shares in Banks DIH whose publicly quoted price is $22.5 per share, a premium of 64% and worth in dollar terms $2,145,478,650?” He further asked how did Banks DIH  justify handing a gain of $3.6 billion to BHL when the gain a year ago in the sale of shares in BHL was $1,147 million?

Noting that such a sale of shares would require a valuation by independent valuators for transparency between the seller and the buyer, BDIH said the price paid was based on a valuation by PwC in December, 2015 which valued the 20% shareholding of BHL in the capital of BDIH at a fair market valuation between $37 and $40 per share.

Contending that there was no “hand out of a gain” to BHL as stated by Ram, BDIH said that it is also disingenuous to compare the sum received by BDIH for its shares in BHL to monies paid by BDIH to BHL as there is a “massive difference” in the value of the Barbadian and Guyanese currency. Furthermore, BDIH noted that it was selling 6.7% of the shares in BHL to Ambev while BHL was selling 15% of the shares in the issued capital of Banks DIH.

“There must be a difference due to the fact that BDIH repurchased 150,138,464 BDIH shares at G$36.79 per share and sold only 4,358,815 BHL shares at BDS$7.10 per share”, BDIH said in its advertisement.   Ram also queried if BDIH was aware that the $5.5b paid for the shares is more than two years of the company’s 2015 after-tax profit, more than 2.3 times the value of its share capital and about 90% of its revaluation reserves?

BDIH in its response said that Ram used the revaluation reserves in his calculation and not the total reserves of the company at September 30th, 2015 which were $23.2b and at 30th September, 2016, $26.1b. BDIH said that the payment of $5.5b is equivalent to 21% of its total reserves and not 90% as stated by Ram.

Also asked by Ram was whether BDIH proposed to finance the transaction with borrowings. Ram noted that at September 30, 2015 the company’s cash reserves stood at $4,060 million, current liabilities at $4,155 million, borrowings at $585 million, and current year (2016) capital commitment at $4,607 million.

BDIH in reply said that 82% of the purchase was from cash resources and 18% comprised  borrowing from two local commercial banks.

Ram also questioned whether BDIH paid in Guyana, Barbadian or US dollars. BDIH’s answer was that the “consideration for the transaction was stated to be in Guyana dollars”.

There had been interest in this transaction as  the local market had experienced tightness in relation to the US currency. BDIH’s transaction would have been worth around US$26.3m.

Ram further asked if BDIH would be prepared to buy back shares held by other shareholders at the same price they paid to BHL. BDIH’s response was that Ram should be aware that no Board of Directors will commit itself to give any undertaking as how it will conduct its business in the future when there is no actual proposal.

Declaration of Solvency

BDIH said that in compliance with the Laws of Guyana, on November 29th it filed a Declaration of Solvency in accord with section 38 of the Companies Act attesting that after the payment of $5.5b the current assets of the company would be $8.3b and current liabilities of $3.3b, leaving working capital of $5b. It said that its cash resources as of September 30, 2016 were $7.5b Referring to a comment that Ram made to the Kaieteur News “That the directors have breached their fiduciary obligations to the Company and caused the dissipation of billions of dollars of the Company’s funds”, BDIH said “This was an extravagant and unsubstantiated charge” and fails to take into account benefits to shareholders. It cited data for the period 2012 to 2016.

BDIH also rapped Ram for suggesting that the public learned even before its shareholders did that in 2015 Banks DIH had sold its shares in BHL. BDIH said this was not so as it had made this disclosure a year ago. On Ram’s question as to why shareholders were only now hearing about the buyback of shares from BHL when this had been in process since December 2015, BDIH said that the repurchase had to be negotiated with Ambev, the new majority shareholder in BHL, whose principals were based in different locations where English is not the first language. Further, the approval of the repurchase by Ambev had to go through various levels of approval.

A MOU in 2005 between BDIH and BHL had seen each company purchasing shares in the other in what had been termed a co-operation agreement.  Banks pointed out that the MOU was to continue in existence as long as there was no “radical” change in the shareholding of BHL. BDIH said that from around October 2015 it became clear that there would be a radical shift in shareholding when Ambev’s subsidiary, SLU made an offer to take over BHL.  BDIH said that it was decided that it was in the best interest of the company to sell its shares in BHL to Ambev. With Ambev’s takeover of BHL, BDIH said that it was advised that it was a natural consequence under the “implied” terms of the  MOU that BHL should no longer continue to hold shares in BDIH.

Analysts have noted that both the 2005 and the 2015 transactions thwarted the ambitions of Trinidad-based ANSA McAl in taking over BDIH and BHL respectively. In the advertisement yesterday, BDIH said that it “will always welcome constructive comment and criticism from shareholders….However, Mr Ram’s castigation of the board and its advisors does not fall into that category. Nonetheless BDIH in the interest of addressing shareholder comment has responded…”