Tropical Battery to raise more funds on the stock market

Tropical Battery Company Limited will turn to the stock market to raise more equity later this year amid plans to continue growing the company.

Tropical Battery, which went public in 2020 and is listed on the junior market of the Jamaica Stock Exchange, is not ruling a migration to the main market of the exchange. Such a move would see it giving up the tax breaks that only junior listings get over the span of a decade.

The energy company expects to double its revenue and profit in the short term, due in part to its recent round of acquisitions. So far, its first-quarter revenue is up by a quarter and profit by two-thirds.

The capital raise will allow the company to grow without heavy debt-servicing costs.

“Yes, it will be done before the end of the calendar year,” said CEO Alexander Melville at Tropical Battery’s annual general meeting on Thursday.

The group operates in Jamaica, the Dominican Republic, and the United States. It supplies auto batteries and energy solutions via Tropical Battery, the EnRvate joint venture with CAC 200 Limited, Kaya Energy, and most recently, Rose Batteries.

The size of the capital raise is under discussion, said Melville.

Junior market companies recently had the cap on the amount of share capital they are allowed to hold lifted from $500 million to $750 million, creating more room for companies that already listed to go after fresh equity capital.

“We plan to take advantage of the new junior market cap,” Melville said.

Last year, as part payment for one of its acquisitions – a $69-million deal for a majority stake in Kaya Energy Group of the Dominican Republic – Tropical Battery issued 3.75 million new shares to the sellers, valued at $7.6 million. Consequently, the company’s share capital climbed from $156.7 million to $164.3 million last year.

It means that Tropical Battery still has a lot of room, more than half-billion dollars worth, to go after fresh equity without breaching the junior cap.

But Melville is signalling that the company may have even greater ambitions.

“Frankly, it still looks like we might have to migrate to the main market unless we do a rights issue or some other instrument, that in combination, keeps us on the junior market. Those are still in early discussions,” said Melville.

The JSE Main Market has no fundraising limits.

Currently, Tropical Battery’s market value is just shy of $3 billion, which is three times its book value of $1.1 billion.

Its debt levels are low at about 60 percentile range relative to its capital base. But that is as of last December. Melville said the acquisition of American company Rose Batteries earlier this year would raise the debt levels because it was funded from borrowings.

“Our debt to equity was low and that’s how we were able to raise the bridge funding to take on the loan. That ratio is a bit different now,” he said.

Going forward, the company plans to balance paying down the bridge loan used to buy Rose Batteries with new shares but in a manner that would avoid overly diluting the interests of existing shareholders.

“We want to take the smallest amount of equity that’s possible to keep our ratios in balance,” said Melville, adding that the company’s next financial report would disclose the transaction details.

The group earned $72 million profit on $809 million in revenue for its December 2023 first quarter compared to $44 million profit on $649 million in revenue in the 2022 period.

Shareholders at the AGM approved the issuing of new shares. Such shares may either be sold via a rights issue or APO on the stock market or sold as a private placement. The new shares will have the same rights as existing shares.

Shareholders also approved the “issue 65.6 million ordinary shares on the junior market of the Jamaica Stock Exchange”. At Friday’s closing price for the stock that amount of shares would be worth over $150 million.

steven.jackson@gleanerjm.com