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Chukka raising more than US$50m for Caribbean expansion

Published:Sunday | December 29, 2019 | 12:37 AMHuntley Medley - Senior Business Writer

Chukka Caribbean Adventures is in the market for more than US$50 million of debt and equity to finance a range of projects that are intended to double the size of the business over the next six months to a year. The Jamaican business that now operates 85 tour packages at 15 locations here and in Belize and the Turks and Caicos Islands, is spreading its wings to The Cayman Islands, the Dominican Republic (DR), and Barbados as the first step in a larger vison to grow the business to between 10 and 15 countries in a five to seven years timeframe.

The new DR operation was scheduled to be up and running on December 15 with deals in the making in both Cayman and Barbados. The DR activities will take the form of lush tropical forest canopy tours, ziplines and dune buggies, while Cayman, where a deal is being wrapped up to acquire a going concern, is expected to involve mainly catamaran boat rides.

Chukka officials have declined to disclose details of the Barbados deal, citing sensitivities surrounding the arrangements. However, the Barbados Nation newspaper reported in July that Chukka had been selected from a public tender to which six companies responded, to operate the government-owned Harrison’s Caves attraction. Tourism Minister Kerrie Symmonds told the Barbados parliament at the time that negotiations were underway for the government to enter a lease arrangement for what he described as Barbados’ “most fundamental natural asset.”

The deal, the government official said was expected to involve the private operator injecting millions of dollars for upgrading the property, taking into consideration sensitive environmental considerations, employment for persons living near the attraction and part ownership by credit unions and other small businesses. At least one opposition party has called for more details surrounding the deal, under which, sources say, the lessee will take possession of the property located in the parish of St. Thomas on March 1, 2020.

Director of Treasury at Chukka, Alexander Melville told the Financial Gleaner in an interview earlier this month that the company would be banking on its strong relationship with cruise lines that call at many ports across the Caribbean to help drive tourist traffic to the new locations as they have done for Chukka’s existing facilities, including the new zipline at Dunn’s River falls in St. Ann Jamaica.

Good marketing machinery

“We can leverage that relationship to get them even more business. Our other strength is that we have a pretty good marketing machinery, so being able to get people out of the hotels has been strong point for us,” Melville says, noting that the business has grown every year for the past 20 years.

He says the newest round of expansion is expected to almost double revenues, thereby creating greater profit gains for investors.

Chukka is majority-owned by the Melvilles through their holding company Diverz Assets Inc. Property conglomerate PanJam Investment owns 18 per cent of Chukka while the Michael Lee Chin-led Portland Private Equity invested US$5 million for a 10 per cent stake of the business earlier this year. In the current round of fundraising Chukka is raising some debt and offering equity through preference shares.

Melville notes that Chukka has been able to manage its current stock of debt, which was not disclosed.

He adds that debt servicing was reduced with the combination of debt facilities into a $2 billion or US$16 million dual currency bond that was issued late 2017 to early 2018 and executed by private capital investment company Sygnus Capital.

That bond issue effectively lowered Chukka’s debt servicing cost from 10 and 11 per cent, the treasury director disclosed. The bond had an interest rate of 8.5 per cent on the Jamaican dollar portion and US dollar coupon of 6.5 per cent.

“It’s like US$1.5 million a year interest cost on the bond with no principal payments on it. It has been the same for the last two years. We do six, seven million US dollars of EBITDA (earnings before interest, tax, depreciation and amortisation) so US$1.5 million of interest cost is not going to eat into all of your bottom line,” said Melville, in underscoring the financial health of the business.

He adds that plans are underway to list various segments of the business on the Jamaica Stock Exchange beginning in early 2020 with an initial public offering (IPO) planned for subsidiary Tropical Battery Limited, to be followed by other segments of the Chukka business within the next year. Melville said the Tropical Battery IPO, being arranged by NCB Capital Markets, will seek to raise between $350 million to $450 million for about a 25 per cent stake of the company.

He sees the public equities market as a good way of broadening the ownership of the business with participation by staff while growing its footprint, earnings and profitability and maximising value for shareholders.

huntley.medley@gleanerjm.com