Laparkan seeks $2.4 billion in private bond offer
$1.2B to refinance existing debt, $1.2 B for expansion
Stabroek News
February 27, 2004
Laparkan Holdings Limited requires $1.2 billion in financing to modernise its operation including its department store Fogarty's.
Laparkan Holdings Limited (LHL), parent company of the Laparkan group, is seeking $2.4B from a private bond placement, 50% of which is to refinance an existing debt and the remainder will fund the modernisation/expansion of its department store, international arm and its industrial business in GNIC.
Chairman of the Group, Glen Khan, is not authorised to speak nor answer questions on the bond issue until it is closed on March 12, an extension from the earlier February 20 deadline. Comments by Khan would be construed as public solicitation under the Securities Industries Act (SIA) and would bring the issue into the sphere of a public offer, calling into play a host of requirements, including taking the company public. LHL is 100% owned by Khan.
The prospectus, obtained independently of LHL, is for an offer of 480 $5 million redeemable 7-year bonds at a net interest rate of 8% per annum, payable semi-annually. LHL undertakes liability for the withholding taxes payable by bond-holders on interest income. The company also assures that if by the fifth year of the issue the Government of Guyana Treasury Bills yield exceeds 8%, it will increase by one percentage point its net interest rate payable. Redemption of the principal is scheduled at 10% at the end of the fifth year, 15% at the end of the sixth year and 75% at the expiration of the bond's life.
The company is hoping to achieve 50% subscription by the close of the issue or it would be required to refund subscriptions. The offer is not underwritten and is only open to `sophisticated purchasers', defined in the SIA as "a person who participates as principal in any trade, the consideration of which is no less than five hundred thousand dollars." Such a person is also required to have access to substantially the same information concerning the issuer that is required in a prospectus and to be able to evaluate a security as an investment on the basis of information provided to him by the seller by virtue of his net worth and advice which may be available to him from an investment adviser who receives no remuneration from the issuer or selling security holder in connection with the distribution. An officer, director of the issuer or his spouse, parent, brother, sister or child would also qualify as a sophisticated purchaser.
Agents for this issue are GNCB Trust Corporation, Trust Company Guyana Limited and the Guyana Americas Merchant Bank. However, Dr Graham Scott, head of the latter institution is also listed as the only independent investment advisor by the Guyana Securities Council and would be precluded from either selling these bonds or offering independent advice to persons on the issue. LHL sets out clearly in the prospectus that persons having doubts about the offer can consult with independent investment advisers licensed by the Act.
LHL is offering as security for bond-holders a first debenture on the fixed and floating assets of William Fogarty Limited, Laparkan Trading (Guyana) Limited, Jim Bacchus Travel Service Limited, Laparkan Financial Services Limited and Laparkan Airways (Guyana) Limited. A second debenture is offered on the fixed and floating assets of LHL, as well as assignment of the Fire Insurance Policies on the properties charged and a personal guarantee by Khan.
LHL owns 70% of the Guyana National Industrial Company Inc (GNIC), 90.5% of William Fogarty Limited, and 100% of the rest of the operations under the umbrella.
The proceeds
LHL plans to utilise $1.2 billion to refinance existing borrowings, $400 million to upgrade properties and equipment, $100 million for new projects, $500M to modernise GNIC's operations and $200M for new projects for its international operation, Laparkan Investments Limited.
GNIC, which is held 30% by the National Engineering Company Inc, is a shipyard, port and engineering company engaged heavily in shipbuilding, repair, port and terminal services, engineering design, construction and project management.
That firm has bagged two major contracts, one with the sugar company under the Skeldon expansion project for the transport of sugar and another with Trinidad Cement Limited (TCL) to transport bulk cement to Guyana and Suriname for packaging plants at both locations. TCL is to construct a bulk storage facility for cement and a bagging facility at GNIC's complex and this is scheduled for completion in September. However, GNIC requires funding to modernise and upgrade its plant and equipment.
Memoranda of Understanding are expected to be signed with the Guyana Sugar Corporation (Guysuco) and Trinidad Cement Limited (TCL) for both projects, with work to start within 12 months. These contracts are expected to provide an annual revenue stream ranging from $1.2-1.6 billion over the next five years.
The prospectus says $500M has already been allocated to address the initial investment required for the GNIC where overall business development plans require $3.56B in financing. Additional financing will be sought through lease purchase options for equipment and concessionary financing from international financial institutions as well as retained earnings. Revenue projections for GNIC see the flow moving from $667M or US$3.3M this year to $3.03 billion (US$15M) over the seven-year period with an anticipated profit after taxes averaging $79M per annum.
GNIC plans to rehabilitate and develop its wharf and ground facilities, including the construction of a new warehouse to position the complex to handle increased containerised cargo; to acquire and/or operate new wharf facilities at Skeldon and Linden (to cater for traffic from Brazil); and to lease and/or acquire vessels and tugs and to build barges to support the transport contracts associated with the Skeldon expansion project and the TCL contracts. It also plans to use the expanded fleet of vessels to pursue long-term transport contracts in the forestry, mining and quarrying sectors.
LHL
The sum of $1.2B will retire existing short-term debt contracted by LHL and $400M is to be used to rehabilitate the William Fogarty Limited department store and to expand LHL's information systems.
LHL wants to engage in web-based communication tools to support its business development and to have established a common service secretariat to realise efficiency gains by serving both LHL and GNIC in Guyana. A key element of the plan is the upgrade and expansion of technology-based information systems.
The international
operations
LHL, which acquired 100% of the international operations at the start of last year, wants to invest $200M in new locations and markets and to enhance its management information systems, including having in place an integrated computer network on a master server.
The hope is to stimulate network expansion, increase cargo volumes and market share. It wants to open offices in cities in North America with a "critical mass" of Caribbean and Latin immigrant populations; to expand to new trading regions including the Far East, the United Kingdom and Central and South America; to develop a strategic trans-shipment and import/export hub in Trinidad to serve the wider Caribbean and Latin America; to promote its private mail box and courier services and to stimulate and expand its money transfer network.
The international operations are projected to see sales increasing from $6.02 billion in 2005 to $13.94B in 2011 and to generate profits before tax growth from $94M in 2005 to $540M in 2011.
Performance
LHL has since the year 2000, seen a trend of declining net profit even as turnover has been increasing. Net profits moved from $81M in 2000 to $39M at the end of fiscal year 2003. The international operations have shown mixed results (see consolidated profit and loss statement).
But the company is projecting whopping increases in turnover over the next eight years, moving from $2.9 billion in 2003 to $11.3 billion next year and then to $23.7B by 2011. This reflects increases of 290% and 717% respectively.
After tax profits are expected to increase by 246% from $39M in 2003 to $135M in 2005 and then increase by 2053% by 2011 (see consolidated projected profit and loss summary).
Auditors of the group, Deloitte & Touche, in their review report of the forecast balance sheet say that the assumptions underlying the forecast provide a reasonable basis for the forecast but caution:
"Even if the events anticipated under the underlying assumptions in the forecast occur, actual results are still likely to be different from the forecast since other anticipated events frequently do not occur as expected and the variation may be material".
Republic Finance and Merchant Bank Limited (Fincor) is advising LHL on this bond issue. Laparkan's first attempt to raise $2 billion in a private bond issue had failed after chartered accountant, Christopher Ram, had highlighted the shortcomings of that prospectus. However, a subsequent bond offer to raise $400M a few years ago was successful. Ram is now been enlisted as an advisor to Laparkan on this bond issue.