NIF wants stake in Petcom - Proposes debt-for-equity swap
Published:Wednesday | January 22, 2014 | 12:00 AM
Avia Collinder, Business Reporter
The Development Bank of Jamaica (DBJ) is about to put Petcom on the market and the National Insurance Fund wants to acquire a piece of the petroleum marketing company, but its pitch for a cashless transaction via a debt-to-equity swap has so far been ignored.
DBJ aims to advertise for bidders within this quarter and has issued a preliminary guide on the state-owned company and its assets, a development that NIF sources say they find puzzling, having received no response to the proposal placed before the DBJ last year.
NIF pitched its debt-for-equity proposal after state agencies to which the Government is indebted were approached about their reception to acquiring assets up for divestment through a swap.
The debt-management measure was later incorporated in the economic programme negotiated with the International Monetary Fund (IMF). The agreement took effect in early 2013.
Well-placed sources say the plan to add debt-equity swaps to the debt-management mix was pitched to the agencies by central bank Governor Brian Wynter, who was a member of the IMF negotiating team. NIF manages about $65 billion of public pension assets, of which 70 per cent is held in GOJ bonds. That's a fall-off from around $72 billion after two debt exchanges by the Government in 2010 and 2013.
The board of the NIF, which was presented with the debt-for-equity proposal, expressed a preference for assets with high cash-generating potential because at the time the fund was suffering from a decline in contributions, resulting from higher unemployment levels, as well as the after-effects of the debt exchanges.
Preliminary proposal
Specifically, the board suggested taking a stake in Petcom and also requested a stake in Petrojam. That, essentially, was the "preliminary" proposal placed before the Government last year. NIF did not, for example, stipulate the stake in Petrojam that it hoped to acquire. DBJ is yet to indicate whether it sees promise in the NIF proposal.
"They have not come back to us subsequent to the signing of the IMF agreement," NIF Chairman Ralston Hyman said Tuesday.
"If they should do so again, we would only be interested in assets which provide a high level of liquidity, this given the high level of inflation, the effects of the various debt exchanges and declining contributions. We need to pay our pensioners."
The NIF manages and invests the proceeds of National Insu-rance Scheme contributions.
DIVERSIFICATION
According to Hyman, while discussions did not progress to the stage of determining how much of government securities would be surrendered in exchange for assets, the proposal would have fit with the NIF's current programme of rebalancing its portfolio towards more earnings from equities and real estate.
"We have a programme of diversification. We are rebalancing the ratios. We are leaning towards acquiring more real estate locally and overseas," he said.
Hyman said the NIF would not acquire any government asset in its entirety, but would take a stake from which it expected to earn dividends.
The Cabinet approved the divestment of Petcom in April 2013, and authorised the establishment of an enterprise team to oversee the transaction. DBJ was engaged as secretariat.
Documentation issued by DBJ on Petcom says the petrol company held 12 per cent market share in fiscal year ending March 2012, and that its sales in fiscal 2013 amounted to $11 billion.
Petcom is a subsidiary of the Petroleum Corporation of Jamaica and was incorporated four decades ago in 1973.
The first service station was opened in Portmore, St Catherine, in November 1989 and today its network spans 28 service stations and 14 liquefied petroleum gas (LPG) filling plants. It has completed feasibility studies and plans to add three new LPG filling plants and two service stations to its network," DBJ said.
It distributes LPG under its proprietary brand 'Cookie Gas'.
PETROLEUM PRODUCTS
The company also markets petroleum products, including industrial fuels and lubricants, to the transportation sector; LPG to the domestic and industrial markets; and asphalt, heavy fuel and diesel oils to the industrial sector.
DBJ did not respond to requests for comment, nor did the Ministry of Finance.
The Bank of Jamaica did not address the issue of talks with the state agencies on the debt-for-equity proposal, nor whether the policy is still being pursued with the agencies. BOJ Senior Deputy Governor John Robinson said only that the swap was one of several proposals made on debt-management strategies.
Under the IMF agreement, the debt-to-equity swaps are meant to cut the size of the debt by at least one per cent of GDP.