BNB deal bolsters Republic

By the end of this month, Republic Bank Limited (RBL) should have a 57 percent shareholding in Barbados National Bank (BNB).

The signing of the Sale and Purchase Agreement for the acquisition of the majority shareholding of the Barbados bank by the local banking giant took place last Wednesday in Barbados. It signalled that Republic is now one step closer to becoming the majority shareholder of BNB. The process of acquiring the majority shareholding in BNB began in March this year when it was announced that RBL was successful in its bid to buy 57 percent of the shares in BNB from the Barbados govermnent. Barbados’ Prime Minister, Owen Arthur and RBL’s chairman and managing director, Ronald Hafford signed the agreement. The transaction is expected to conclude by the end of July. Harford, in an interview with Business Day, said that the initial down payment of ten percent was paid when the deal was signed. This amounted to just about US $9.5 million.

The entire deal will cost RBL just under US $95 million and the remaining sum is expected to be paid before July 31. When the final amount is paid, 57 percent of BNB’s shares will come under RBL’s control and BNB’s operations will be replaced with Republic’s directors. The remaining shares will be split among the Barbados’ government (20 percent); the National Insurance Board (10 percent) and the remaining 13 percent will be held by institutional and individual shareholders in Barbados. Hafford said in accordance with the Takeover Code, RBL will make an offer to acquire the shareholding of the minority shareholders when the transaction with the Barbados government is concluded. Hafford also explained why Republic Bank chose to do business with BNB. He said it is no secret that Republic has been looking at acquisitions throughout the Caribbean. “However, in the Caribbean what we have found is that there are plenty things to buy, but not enough of the right things to buy,” he said. He said in Republic’s case, the underlying concern has always been the business of sound economies. He noted that there are only about four sound economies in the Caribbean right now — and Barbados is one of them. “We were aware of BNB, but they were under a mandate from their government to sell and they really were the ones that encouraged us to come and have a look at their operations.”

Hafford said they accepted BNB’s invitation and liked what they saw. “So it really was not a hostile deal in any way,” he said. “It was a deal where BNB wanted Republic to be their strategic partner and their was mutual interest in achieving that objective.” He added that the entire negotiations were very smooth and cordial and noted that he has never done a deal as smooth as this one in the past. He explained that before the CIBC/Barclays merger, the Barbados banking market was heavily fragmented. While he could not provide exact figures, Hafford said Barclays had about 19 percent of the market, CIBC — 18 percent, Bank of Nova Scotia and BNB 20 percent each with the other banks holding the remaining market. With the Barclays/CIBC merger, they acquired 37 percent of the market, making BNB one of the second largest banks in Barbados. “BNB has a nice size market share. What is also important is the fact that it is well run and profitable. It produces a return on assets of 2.16,  which is very good. We produce 2.4, but there are not many organisations that can produce that kind of return on assets.”

BNB has an asset base of US $626 million and recorded an after tax profit of US $13.1 million in 2002. Its subsidiaries include the Barbados Mortgage Finance Company Limited and the BNB Finance and Trust Company Limited. The bank has a complement of 363 employees and six branches across Barbados. RBL is one of the Caribbean’s largest and longest standing institutions, with subsidiaries in Grenada, Guyana, and off-shore banks in the Cayman Islands and Barbados. For the half year ended March 31, 2003, RBL reported profit attributable to shares of $246. 9 million, representing an increase of 27.4 percent over the corresponding period last year. During the first half of the year, RBL had some windfall gains in a special dividend of $48 million from its investment in CIBC and deferred tax adjustment of $36 million following the reduction of corporation tax by five percent to 30 percent.
“The overall excellent performance will challenge us during the second half to equate or exceed,” he said

Hafford said while BNB has a nice market share and a bright future in a solid economy, he believes that Republic Bank can add value to its operations because of its expertise in merchant banking, credit cards, mortgage banking and small business. He added that BNB is not going to take Republic’s name. “Republic Bank will add value in all these different areas and will also train BNB’s staff and give them the opportunity to develop.” Apart from BNB, Hafford said Republic is always looking for lucrative opportunities within the Caribbean. “It is interesting to know that we did a calculation recently which revealed that over the last couple of years we have looked at over 20 different transactions and for one reason or the other, either the price was too high or when we thought the offer was good the partner did not want to sell so those deals did not come through.” Additionally, he said Republic Bank is very selective about their business and take their time before entering different countries and starting new projects.