Aliv’s $15m offering could ‘double’ goal

Friday, February 9, 2018

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

ALIV’s advisers yesterday expressed confidence that its latest $15 million capital raising, which launches Monday, could raise double the target despite lower-than-forecast revenue margins.

Michael Anderson, RoyalFidelity Merchant Bank & Trust’s president, told Tribune Business that he expected the mobile operator’s preference share offering to be “more than fully subscribed -possibly raising up to $30-$40 million - based on initial investor feedback.

“We’ve had a very positive reaction in the market,” he said. “We believe it will be more than fully subscribed. Even within our own investor base we’ve had positive indications. Our sense is it will be more than fully subscribed; we’re definitely looking more to $30-$40 million than $15 million.

“The market seems very keen to participate. We’ve had strong indications from our investor group, and speaking to other broker/dealers they’ve seen good interest themselves. We anticipate it will be well received. I don’t know if we will get more than $30-$40 million, but that’s more an indicator of what we’re looking at.”

Aliv’s latest capital call will be boosted by the extraordinarily low interest rates on bank deposits and lack of alternative investment options, with the 8 per cent interest rate on 10-year preference shares likely to look especially attractive to targeted investors.

Documents issued to investors confirm the offering proceeds will be used to finance completion of its mobile network infrastructure roll-out in the southern Family Islands, and also to “cover operational cash flow needs as the company continues to grow”.

Should the issue be oversubscribed in line with Mr Anderson’s projections, the excess capital could be used to repay equipment leases and take out existing, more expensive financing facilities to “significantly improve the company’s cash flow over the ensuing five years”.

While Aliv’s drive to win market share has secured over 100,000 subscribers or around one-third of the Bahamian market, the offering documents reveal that margins are around “eight months” behind forecast due to lower-than-expected revenue per customer (ARPU).

“Over 100,000 Bahamians have already switched to Aliv as active subscribers, on plan with original forecasts when the company was first launched,” the documents revealed. “ARPU is lower than expected in the original plan at this time, but is growing nicely towards those original targets being about eight months behind plan.”

While volumes are on target, Mr Anderson said the delayed launch of mobile number portability - which allows Bahamians to keep their number when switching to Aliv from the Bahamas Telecommunications Company (BTC), or vice versa - was “largely” responsible for the operator missing its original ARPU targets.

This, the RoyalFidelity chief explained, meant Aliv’s ability to make inroads into two key consumer segments - the corporate market and ‘late adopters’, who want to make sure the portability system works before they switch - was delayed in comparison to the company’s internal estimates.

“They’d always projected by December to be around 100,00 subscribers. That’s where they are,” Mr Anderson told Tribune Business. “ARPU numbers are growing all the time, and they’ve got into the corporate market. It pans out to what they want; it’ll just take longer to get them. The expenses in terms of what they’ve spent are largely where they expect to be.”

Aliv has financed its operations and network roll-out to-date without taking on traditional commercial bank financing, having relied on shareholder equity injections, vendor financing, a bond and now-preference share issue.

Apart from the $136 million initial financing from its two shareholders, Cable Bahamas and HoldingCo (the Government, which is set to be bought out soon), Aliv has also received $50 million from its primary vendor, Huawei, and the $60 million proceeds from last year’s bond offering. Should the $30-$40 million preference share projection be hit, the operator’s total financing will reach $276-$286 million.

The documents accompanying the $15 million ‘capital call’ reveal that Aliv “is still targeting at least 47 per cent of market share over the next two years that will be driven by increased demand for data, better network and, of course, excellent service”.

Its internal financial projections forecast that subscriber numbers will increase from 108,000 at end-March 2018 to 144,000 by June 30, 2019, the month when its financial year ends. This represents an increase of 33.3 per cent.

ARPU is projected to grow from $36 per subscriber to $52 over the same period, a rise of 44.4 per cent, helping to drive gross margins from 48 per cent to 70 per cent. With quarterly operating expenses held constant at $12-$13 million, earnings before interest, taxation, depreciation and amortisation (EBITDA) are forecast to move ‘into the black’ during the quarter ended on December 31, 2018.

Dividends on the latest $15 million preference shares are due semi-annually on April 30 and October 31 each year, with the first payment scheduled for the latter date this year. Principal repayments are in five equal annual instalments, with the first occurring at end-October 2023 and the process completed on the same date in 2027.

The preference share issue is a private placement targeted at specific institutional investors and high net worth individuals. Members of the public should not seek to become involved.

Comments

TheMadHatter says...

Like people always say ... "Read the fine print."

The article says at the end ... "The preference share issue is a private placement targeted at specific institutional investors and high net worth individuals. Members of the public should not seek to become involved."

LOL LOL LOL LOL LOL LOL LOL LOL

AS ALWAYS - If you are just an ordinary Bahamian (referred to here as "members of the public") you can go suck your teeth. Too bad for you. Some people gonna be collecting interest as high as 8% - but guess what ????????????????????????? IT WON"T BE YOU.

Shut ya mouth and wait another 4 1/2 years and ink your finger and cast your vote for one of the same old two Parties and carry on with ya job or ya business and pay ya taxes. But most importantly, shut ya mouth and stop believing that you are an actual member of this society.

The metal shackle is still on your ankle - they just make them invisible and very lightweight in these "modern" times.

After reading (and understanding) this article, any ordinary Bahamian who switches to Aliv has got to be a (censored).

Posted 9 February 2018, 9:42 p.m. Suggest removal

observer2 says...

MadHatter

http://bisxbahamas.com/wp-content/uploa…

Count yourself lucky that the offering is only for high net worth individuals and institutional investors. Take a look at the financial on the above link and you will see that the company lost $15 million last quarter and had capital outlays of $21 million.

It also had total liabilities of $557 million...yes, that half a billion dollars!!! The entire Bahamas government, with all of their mis management only has 8 billion of debt.

Also, they only have $6 million in net revenues to service the half a billion of debts.

Now they are borrowing another $15 million and just got a loan of $50 million from its Chinese Vendors, Huawei. The debt is going to be so high that Huawei/Chinese will need to come in and be their savior. In the meantime the bond holds will be wiped out, just like the equity holders have already been wiped out.

I give it a couple of years. The Chinese are not going to pay the interest on all these loans forever. Baha Mar here we come!

Also, 5G is coming which will need another upgrade and I am sure Google will provide satellite internet to compete.

But no worries, I am sure National Insurance will subscribe to a bunch of Cable's bonds with what little is left of our retirement funds.

Posted 10 February 2018, 1:26 p.m. Suggest removal

DonAnthony says...

Your analysis is incorrect in a very material respect, this preference share offering is not tied into Cable Bahamas balance sheet or debt. This is debt issued by Aliv as a separate entity from Cable, true Cable has management control and owns 48.75% of stock but debt repayments will be made from future Aliv earnings.

The reason the interest rate is so high is to compensate investors for the risk that this is divorced from Cable and is totally unsecured debt. So if Aliv is a flop one can lose their whole investment.

I agree with mad hatter that this should be open to the general public, as the minimum allocation is 50k, and if one can afford to invest this amount the expectation is that one would be capable of making a wise investment decision or have the means to obtain it professionally. All share offerings should be open to the public and filled from the bottom up, as this is one of the few meaningful ways the general public can partake in significant wealth generation in our economy. We are watching to see if the present government fulfills their pledge to make a Aliv and BTC ordinary shares available to all!

Posted 10 February 2018, 2:29 p.m. Suggest removal

Hi DonAnthony

With due respect you are not correct. Under the equity accounting method of consolidation, because Cable own's 48.75% of Alive the full results of Alive are consolidated into Cable's results. Any ownership over 20% must be consolidated into the parent companies financials.

See Note 21 in the financial statements link above. Actually the results of Aliv are even worse that I had imagined according to this note. Revenues of $12 million and losses last year of $55 million!

Aliv is not a publicly traded company so their non consolidated results are not published to the general public.

Based on my reading of the financial statements it is still my recommendation that Alive is correct in not allowing the general public to subscribe to this debt issuance. Let high net worth individuals and institutions loose their money. Lol.

However, the only problem here is that the pension funds have a high concentration risk to Cable/Aliv with over half a billion dollars owing.

This will not end well. Stay clear.

Posted 11 February 2018, 8:08 a.m. Suggest removal

The point I was making which is correct is that this is not debt issued by cable or that will be paid from cable’s earnings. This is debt issued and paid for by future Aliv earnings. This choice was deliberate as investors have had more than their fill of cable debt ( I agree completely that cable is overextended and leveraged) and the offering would have failed had it been structured as such.

So to analyze cable’s debt and balance sheet and conclude it is not a wise financial decision, as you did is incorrect. One needs to review Aliv’s financials as I have, as I was one of the solicited investors. There is no dispute that the earnings of Aliv will accrue and be consolidated into Cable’s in the proportion of their share ownership. That was not in question.

This is an offering with risk, no doubt, but as a savvy investor knows risk and returns go hand in hand. The key is to be an astute evalutor of risk and ensure that the expected return compensates for that risk. Risk is not always bad it is an opportunity.

As to Aliv having revenues of just 12 million and losses of 55 million you must realize that Aliv is a startup, capital intensive company, with significant growth potential, very rare in this economy. In the initial year of operation those losses are to expected. If Aliv reaches their goal in 3 years of 50% market share and ARPU of 56 then ebidta will be 33 million and the company will be a success and the initial losses of 55 mill meaningless. So far they are on track with market share but ARPU is lagging. Only time will tell but I am thrilled that as a Bahamian I have the opportunity to evaluate and if I like participate. This option should be extended to as many Bahamians as possible who have the 50 k to invest, not just a select few.

Posted 11 February 2018, 1:49 p.m. Suggest removal

Thank you for your well constructed comments.

Its actually refreshing to have a conversation with someone who is actually reading financial statements and assessing the risk of an investment as best as possible. Not not taking the company fluff published in the Tribune. Thank God they allow us bloggers!

For too long Bahamian's have blindly invested in Clico, Bank of the Bahamas, Gulf Union, Bahamas Supermarkets etc etc without actually reading the financial statements which are readily available to the general public. If they did many of them would not have lost millions of their hard earned savings.

Based on your comments we are actually discussing two different issues:

1. Should Aliv preference shares and bonds be available to the "average" small investor

and

2. Will Aliv actually survive as a start up against BTC and foreign carriers.

The answer to question one is that the management of Aliv have said no. Aliv is not going to allow small investors into their debt issue because it is not appropriate for them. I am not saying this. Aliv are saying this. They are not publishing on BISX their audited financial statements. I agree with Aliv. Start ups, as Aliv is, in numerous situations fail. If Aliv fails with a bunch of small time investors, the general public will scream to the government and Bisx as to why they weren't protected against such a speculative investment. All of the major tech companies in the US started out as private companies and not available to the general public due to risk. Eg. Google, Facebook and Microsoft. Uber is still private. Once they become profitable they can go public.

My only comment here is weather Bahamians realize it or not, if they own Cable Bahamas stock they have $189 million of Aliv's assets on their balance sheet. If Aliv fails, Cable stock price should be written down.

I suspect, based on only $12m in revenue and $55m in losses the auditors will need to take a significant write down of Cables assets this year.

Lets see.

Posted 11 February 2018, 4:38 p.m. Suggest removal

I appreciate your analysis, we clearly have differing views on how risky Aliv is but that is what makes a market! I love how a stock is traded and both the buyer and the seller believe based on their analysis and information they have made the right decision. Like we said only time will tell.

A few points why Aliv is less risky than you think. Aliv has very experienced intelligent management and if you speak to them they do not even consider voice revenue in their forecasts anymore. They assume that “voice goes to zero”. There is no putting the genie back in the bottle, Bahamians love what’s app and it is here to stay. Most importantly URCA, the cellular regulator desperately wants Aliv to succeed. It has been quite lenient and generous with Aliv (questionable if they met their rollout targets and should have forfeited some of its 18 mill performance bond) and will continue to be so as it wants the sector liberalized which is only possible with a vibrant competitor to BTC. It is wonderful when your regulator is rooting for your success, it is like having an ace in the hole. I agree with the other risks you highlighted.

We continue to differ as to opening this offer up to the general public. I would just add that contrary to many bloggers views BISX despite its very serious limitations ( chief among them illiquidity) remains a wonderful wealth creating opportunity and one of the few ways for the average Bahamians to become owners in this economy. At every return the default reaction should be to give the Bahamian public more investing opportunities ( with caveats of course). I laugh every time I read these bloggers disparaging BISX, investing in BISX has allowed me to retire 25 years sooner than I could have otherwise, and what I did any average Bahamian could do with a bit of fiscal discipline and financial expertise. They get up and go to work ( a job they probably hate) and I do with my day what I want, no more punching the clock. That is what is possible trading on BISX it is liberating. I will end with this note on Cable, it debuted in 1994 with an IPO price of $1, at its peak it traded at a share split adjusted price of $25 a couple of years ago. That is wealth creation that can be life changing.

Posted 12 February 2018, 8:30 a.m. Suggest removal

I doubt it, but that's my personal opinion. BTC is owned by the Bahamas Government and Liberty Media, both loss making entities. Liberty Media had significant assets in Puerto Rico which suffered massive damage in last hurricane. It will be impossible for them to rebuild as no one will invest in the Caribbean with super hurricanes (wind greater than 150 mph/ greater than Cat 5) caused by global warming. This goes for Aliv as well. Lets just hope we don't have a super hurricane going through Nassau this year. Aliv, BTC and BEC will be complete write offs. Don't believe me? Dig a little deeper into Peurto Rico's recovery and financials. They are now bankrupt. A failed state, due to the hurricane.

Also the foreign carriers, Sprint etc., are competing aggressively for Bahamian customers in Miami. They are offering free low speed internet, free text, no roaming charges and only 20 cents a minute calls to the US. They are also offering free phones to Bahamians! Soon we won't just be shopping for cloths in Miami, we will be getting our phone service as well.

Also, with WhatsApp it doesn't really matter where your phone number is located. All calls are free!

Cable/Aliv's $500m needs to be checked for impairment.

I don't think I need go further.

Posted 11 February 2018, 5:08 p.m. Suggest removal

realitycheck242 says...

@Donanthony and Oberever. I salute your expert and insightfull comments on this article. about Aliv 15m offering. It is obvious to me that you guys have financial; and acounting backgrounds and may even be experts in those areas. Your analysis have helped me alot since i am just local investor with a tech background.

Posted 12 February 2018, 7 a.m. Suggest removal