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First Citizens rolls out APO

Natalie Briggs Thursday, March 16 2017

First Citizens Bank has placed another block of shares on the market in an Additional Public Offering (APO), that will see individual public investors having priority access to 55 per cent of the stock, according to Karen Darbasie, the bank’s Group CEO

Sitting with Business Day on Tuesday, Darbasie said stock for this offering was being made available from the Government’s 78 per cent holding in the bank in a bid to raise funds.

“The Minister of Finance announced in the Budget that he was going to be putting on sale an additional block of First Citizens as part of his budgetary measures for fiscal 2016/17. This is part of his financing mechanism for the budgetary financing of this current year,” she said.

Out of government’s 78 per cent, a further 20 per cent will be made available for purchase, reducing government’s holdings in First Citizens to 58 per cent.

Darbasie saw the move as an opportunity for the small investor and average members of the public to make a good investment with a higher than average return. She said that the share price of $32 compared favourably to that of stock for other financial institutions on the market, while its dividends were at the higher end of what was currently available.

“This is an affordable share from that perspective. In addition, this gives the opportunity to participate in investing in a bank that is strong. We have the best capital ratio in the market. We are profitable. The bank has shown very consistent growth. The return that an investor will get is 4.16 per cent,” said the Group CEO.

“When you look at comparable opportunities for investment, if you put your money on a deposit rate or even a mutual fund, rates on mutual funds are just above 1 per cent. If you are going to try to achieve 4.16 per cent as a return for funds that you are placing on an investment, you are really looking at a government bond somewhere between a nine to ten-year horizon.”

Darbasie noted that government’s intention was to have the “widest possible participation” in the APO, which is why 55 per cent of the offered shares, or the majority, were open for the general public’s purchase.

And, to make sure that those shares end up in the individual small investor’s hands, the Group CEO said the Bank has learned lessons from the IPO and has applied them here.

On its own investigation of the events surrounding the controversial IPO, Darbasie told Business Day that it has a list of employees who cannot take part in the APO.

“For every transaction that the bank undertakes, Compliance, in conjunction with Risk looks at all the employees who may be participating from the bank’s side. In arranging the transaction, they determine a list of employees who may seem to have information that the general public wouldn’t or those who control or have oversight of the process. These employees are put in a particular category called restricted employees and they are prevented from investing in their personal capacity.”

Darbasie said this restricted list includes herself, the two deputy CEOs, as well as executives at the entities handling the APO, First Citizens Investment Services and First Citizens Brokerage and Advisory Services.

“Apart from that,” she said, “the government has not provided an employee bucket in the allocation strategy. Employees must subscribe along with everybody else in the public. During the IPO, employees were allowed to subscribe at a discounted rate. Now, there is no discount rate applicable to employees, employees apply as members of the public.”

She told Business Day that the Securities Exchange Commission has not yet provided the bank with a copy of its investigation into the IPO affair, even though the bank understands that there is a report.

The Group CEO expressed her personal view that if the SEC had misgivings about the bank having another public offering, however, that it would not have allowed the APO.

Regarding criticisms of the value of First Citizens shares as overvalued, Darbasie responded:

“Value is determined by the investors who trade in the stock. How do you determine value? The return, 4.16 percent is a very good return on the investment and that is among the highest in the stock market for dividend yields, not just in the financial sector, but across the stock market as a whole.

“The other mechanism that you benchmark value for the stock is the Price Earnings Ratio, and the PE Ratio at the $32 price is around 12.6 per cent. The higher the PE ratio, the higher the price relative to the earning potential. At 12.6, we are at the middle of the market. I don’t think the stock is overvalued. At $32, one could argue that given that the stock has traded between $34 and $35 that there is an upside to be given. It is not the upside that was there at the IPO. Twenty-two dollars was a very big upside. But this is not an upside that one should discard. The PE ratio also suggests, for an institution with steady earning potential, and we’ve not had volatility on our earnings, that the share price is potentially on the low side and could go up.”

Darbasie said the APO has attracted the attention of some regional institutional bodies. She also said nationals abroad who already had brokerage accounts were able to purchase shares.

“If you have foreign investors coming in, that will bring foreign exchange into the country as well. That’s a positive, if it in fact develops,” she said.

The closing date for applications is Friday, March 24.

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