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Local News>Pulse reclaims independence - Redeems 8.9m prefs held by backerSabrina N. Gordon - Business Reporter |
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Hinting at concern that the Development Bank of Jamaica might have wanted to convert the holding to ordinary stock - thereby grabbing a greater stake in the entertainment and property company - Kingsley Cooper's Pulse Investments has redeemed nearly $30 million worth of preference shares held by the state bank.
"The redemption is in line with an ongoing strategy to reduce debt and prevent the dilution of the company," Cooper said in a statement yesterday.
He has paid $24 million of the total $28.5 million due to DBJ, and is scheduled to pay off the remaining $4.5 million in April.
Cooper acted a near three years ahead of the scheduled redemption date of December 2010, saying that DBJ may have found its current stock price of $7 too tempting to resist.
"Importantly, this move could prove to be particularly strategic for Pulse as its redemption prevents conversion of the stock to ordinary shares.
Had Cooper not moved early, the 8.9 million prefs would have matured in December 2010, but by acting now he has forestalled any likelihood of DBJ expanding its voting rights in the company, whose reputation was built on the models it takes to international stardom.
Cooper built Pulse as a fashion model management business in the 1980s and took it public in the early 1990s when the Jamaica Stock Exchange was on a sharp growth path and Pulse had begun to send its models abroad on arrangements with international agencies. But by the mid 1990s Pulse had run into problems and was on the verge of bankruptcy.
In fact, it was suspended from the exchange for a nearly a decade, until its return to trading last year, for failing to file its audited accounts.
It was during this period that the then National Investment Bank of Jamaica (NIBJ), a government entity, acquired six per cent stake in Pulse and pumped in additional $20.5 million in cash by way of the prefs.
The DBJ inherited both the ordinary and preference shares when it absorbed the NIBJ in 2006.
Since Pulse resumed trading, its shares have been on an upward climb in the exchange, closing at a high of $7 on Monday.
At this price, if the DBJ was able to convert to it prefs to ordinary shares at a one-to-one ratio, they would now value more than $62.3 million.
DBJ officials were not immediately available for comment yesterday about their intention, but this, apparently, was a risk that Cooper, who holds 77 per cent of the company, was not about to take.
Dilution of Stock
"Conversion would have resulted in dilution of the company's stock, bringing another 8.9 million shares to the company's stock in issue," Cooper said.
It clears Pulse of obligations to the state bank, but the company remains $20 million indebted, but mostly to its banks, according to Cooper.
Pulse's balance sheet at December 2007 shows total liabilities of near $61 million against total assets and equity of $1.19 billion.
The redemption of the shares has reduced the company debt level by almost $30 million. "Apart from bank debts in the amount of $20 million and operating liabilities which is part of the normal business operations, there is no other significant entity that the company is indebted to," Cooper added.
The shares are redeemed three years ahead of its schedule redemption date of December 2010 and represents a strategic move says Cooper to prevent any attempts at conversion of the 8.9 million preference shares to ordinary shares.
The conversion of the shares would have valued in excess of $62.3 million with the company now trading at $7 and represents their full exposure.
The preference shares were resold to Pulse Investment Ltd at the unit price of $2.30, representing an investment of $28.5 million, which the National Investment Bank of Jamaica (NIBJ) had pumped into the company in the 1990s to support its efforts at reorganisation.
DBJ retains 6.0 per cent share ownership in Pulse Investment Ltd holding in excess of 14 million of its ordinary shares.
The majority share ownership of the company is now distributed among Kingsley Cooper with 77 per cent, Hillary Phillips with 7.0 per cent and DBJ with 6.0 per cent.