TransJamaican IPO to rake in upwards of US$100 million

TransJamaican Highway’s initial public offering (IPO) will be the biggest in Jamaica’s history going on the market on February 17, seeking to raise upwards of US$100 million or J$14.1 billion.

It is noteworthy that the cost per share is J$1.41 or US$0.01, which runs counter to the initial assertion by the government to keep the price as low as the Wigton Windfarm IPO to encourage the widest participation from the Jamaican investing public. The Wigton Windfarm IPO last year came in at J$0.50.

The prospectus containing the details of the IPO is now posted on the website of the Jamaica Stock Exchange (JSE) gives a closing date of March 9. The initial number of shares being sold in the IPO is eight billion to raise US$80 million or J$11.2 billion.

However, the National Road Operating and Constructing Company Limited (NROCC), which recently acquired full ownership of TransJamaican is reserving the right to upsize the offer for an additional two billion shares to increase the offer to 10 billion shares to raise US$100 million or J$14.1 billion.

TransJamaican Highway holds a 35-year concession for the Highway 2000 East-West toll corridor comprising a 43.5-kilometre stretch between Kingston and May Pen, Clarendon, with a connection through Spanish Town, St Catherine, and a 6.4-kilometre stretch that runs between Kingston and Portmore.

NROCC’s purchase of full ownership of TransJamaican from its previous owners, a consortium comprising the French construction firm, Bouygues Travaux, and Vinci Concessions of France along with the Washington-based International Finance Corporation, the private sector-funding arm of the World Bank and Société de Promotion et de Participation pour la Cooperation Economique SA of France was done through Bridge Notes arranged by NCB Capital Market.

Use of proceeds of the IPO

The proceeds of the IPO to repay the debt in respect of the Bridge Notes, the proceeds of which were used to purchase TransJamaican, while NROCC and the Ministry of Finance & the Public Service will decide on how the balance is to be utilised. Funds from the IPO will also be used pay for the offer for sale and listing expenses.

One of the primary objectives of this offer for sale is to promote direct public ownership by ordinary Jamaicans of key strategic assets of the country.

The prospectus has stated that an investment in the company based on the current offer price is expected to yield an Internal Rate of Return (IRR) of 13% to 14%. This is above the benchmark for brownfield toll roads which ranges from 8% to 12% based on industry studies.

Value proposition

According to the prospectus, “this offering presents a unique opportunity for investors to participate in the ownership of the first toll road, an integral piece of Jamaica’s infrastructure with key investment highlights being the attractive traffic profile with strong, stable historical traffic volumes and gross toll collections. In the last seven years, historical traffic and toll collections data for the Toll Road reflect sustained growth with limited volatility. We expect that Jamaica’s current traffic profile combined with its projected positive outlook will result in a steady increase in demand for safe and efficient transit options and increased traffic flow on the Toll Road.”

TransJamaican Highway boasts consistent financial performance

TransJamaica has a strong historical financial performance, with revenues of US$52.4 million and Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) of US$34.7 million for the year ended December 31, 2018. This represents a compound annual growth rate of 10.7% and 15.8%, respectively between 2014 and 2018.

As a result of operational improvements in the last five years, operating expenses have increased at a slower rate than revenues, allowing EBITDA margins to increase from 55.2% in the year ended December 31, 2014 to 66.1% in the year ended December 31, 2018.

The year-to-date performance to September 2019 indicates that the EBITDA margin is 65.1%. The financial performance of the Company is expected to further improve due to several factors such as improved traffic projections with an expected average growth rate of approximately 2.3% over the rest of the concession period.

This is supported by a study done by Steer Davies Gleave Incorporated in December 2019. TransJamaican has been in operation for over 18 years and so the risks associated with the Toll Road have been identified and managed.

Refinancing existing debts

The company has no mandatory major capital expenditures apart from periodic and routine maintenance until 2034. Concurrently with the IPO the company has started the process of refinancing its existing long-term debt.

The refinancing was triggered in part by change of control provisions as well as the ability to obtain more favourable terms such as lower financing costs, release of certain restrictive debt service covenants resulting in more funding being available for operations and distribution to shareholders.

This is in addition to an extension of debt maturity period beyond 2029 under the immediately preceding debt structure.