Pan Caribbean Financial Services Limited (PCFS) raised $1.26 billion from its monthlong preference share offer, falling well short of the initial $2 billion target.

But yesterday Pan Caribbean president Donovan Perkins downplayed the outcome as significant, saying the brokerage had deliberately pulled back from its hard sell of the shares in line with the broader objectives of the group.

Pan Caribbean is owned by Sagicor Financial Corporation of Barbados.

Sagicor, which is servicing an international bond, is attempting to manage its debt-equity mix within particular ratios to maintain its credit ratings.

"So we had to back off a bit," said Perkins.

AM Best just recently reaffirmed its A rating of Sagicor.

"The Sagicor Group decided not to exceed the equivalent of US$18 million in this fundraising exercise based on its objective of maintaining consolidated debt to equity targets, consistent with its credit rating expectations," added Philip Armstrong senior vice-president of capital markets operations at PCFS.

The target for the prefs was reset to about $1 billion to $1.5billion, according to Perkins, who noted that the offer had raised $1billion within the first couple of weeks of placement.

The shares were issued at $200 per unit - by far the most expensive preference issue in the recent round of issues by other brokerages that were priced no higher than $3.50.At the $200 price, the market had expected take-up from institutional investors mainly.

Perkins acknowledged that Pan Caribbean had faced questions on whether the brokerage had targeted only the rich, but he told the Financial Gleaner that the offer was "never intended to be discriminatory."

What investors should have been looking at, he said, was the coupon, which will afford them returns of 12.5 per cent. The prefs are redeemable in five years.

It's the highest coupon quoted on recent pref issues; JMMB came closest with its $2.95 prefs which offer returns of 12.25 per cent.

Perkins also said that a low-priced offer would have presented the brokerage with higher stamp duty, calculated at 1.0 per cent of volume shares issued.

The 10 million pref shares on offer would have attracted stamp duty of $100,000.

"If we had set the price at $1," said Perkins as example, "we would have had to create one billion shares."

The stamp duty would then have been $10 million.

At the $1.26 billion raised, the take-up of the 12.5 per cent prefs amounts to 6.3 million units.

Pan Caribbean had said it would have withdrawn the offer, if the take-up had failed to reach a minimum of $500 million or 2.5 million units.

"We're in the process of notifying the JSE, however, we are satisfied with the amount raised and view it as a success," said Armstrong.

Dealers in the market had signalled from mid-week "Very little interest was being shown in the issue," said one analyst who spoke on condition of anonymity. "The take has been very slow."

According to Philips, the preference share subscriptions came from a mix of corporate, 60 per cent and individual investors, 40 per cent.

JMMB, the last financial house in the market with a dual issue 12.25 per cent and 12 per cent raised over $2.5 billion in December 2007.

Oversubscribed

Earlier in the same year, financial houses such as Mayberry Investments and NCB Capital Markets had issues that were also oversubscribed.

Analysts cited the timing of the issue, given central bank hikes in interest rates and the expectations of further rate increases, as possible detractions.

"The level of excitement that it should have created was negated by the spike in BoJ interest rates, with one-year paper now being offered at 15 per cent taxable 11.25 per cent after tax a 12.50 per cent may have seem less attractive to investors over the five years," said Clinton Brooks, managing director at Stocks and Securities Limited.

Added Rex Shettlewood of Mayberry: "The general expectation of the marketplace that rates should trend higher, may have caused many brokers to place funds for shorter terms. This is with a view to reinvest on maturity at higher rates in the near future."

PCFS said that the funds were being raised to strengthen its capital base, while allowing itself flexibility for expansion of the business.

"We're a financial company, so money is our inventory," said Perkins.

Some of the funds will finance the start-up of the brokerage's commercial bank to be launched mid-year as well as purchase of securities for resale, said Perkins.

Pan Caribbean is a profitable company, reporting net income of $1.2 billion in 2007, when compared to the prior year, which recorded net profit amounting to $1.1 billion. Its assets under management top $110 billion.

sabrina.gordon@gleanerjm.com