TRINIDAD STOCKS
TCL, Royal Bank
top picks for 1997

1996 was a historic year for the Stock Market. There were 120,855,519 stocks traded (excluding put-throughs) which made it the busiest year in the history of the market. The value of the stocks traded in 1996 was $642,696,455. This made it the second highest year by value after 1995 when the value of stocks traded was $667,188,467. The Composite Index, which began the year at 150.2176, ended at 167.4133. The percentage increase in the Index was 11.45%, which is a commendable performance coming after the 69.55% increase in 1995.

The big news in 1996 was the battle between Republic Bank's Board of Directors and the Bank's major stockholder, Colonial Life Insurance Company Limited (CLICO).

The latest scrimmage between the two parties began auspiciously because Republic Bank did not inform CLICO about its choice for a new Managing Director. This led CLICO to petition for an Extraordinary General Meeting (EGM) in order to remove the majority of the directors and replace them with directors of its choice. Republic in turn began a bitter media campaign which only stopped when the Minister of Finance and the Attorney General held mediation talks with both parties.

These talks led to a Standstill Agreement between the two parties until the EGM. The agreement entailed that CLICO withdraw its petition for an EGM, cessation of the media campaign and that both parties refrain from buying Republic stocks for their own account.

In the weeks leading up to the Bank's 1996 AGM, CLICO filed resolutions against the re-election of three retiring directors, while proposing four directors of its own. This led to another bitter media campaign by the Bank's Board of Directors. Once again, the Government tried to mediate but its efforts were fruitless. At the AGM, the Chairman closed the meeting without putting the resolutions to a vote. This effectively denied stockholders the right to vote for directors of their choice. CLICO then petitioned for an EGM, at which it wants to elect four directors of its choice without removing any of the present directors.

There were many changes in the nominal capital of the listed companies in 1996. Royal Bank had a rights issue of two new shares for every seven held, at a price of $9.25. The issue, which was the largest in the history of the Trinidad and Tobago Stock Exchange, raised $235 million. This issue was an outstanding success with stockholders accepting 23,695,273 of their rights - an acceptance rate of 92.98%. There were applications for 17,760,754 excess shares, with only 1,788,379 being available.

At the very beginning of the year, Republic Bank purchased 52,605,000 stocks in CIBC WI Holdings Limited (CIBCWIL) for $199,899,000. This was necessary for Republic to maintain its 20% stake in CIBCWIL, after the latter had issued 263,000,000 new shares to CIBC Canada for the purchase of CIBC Bahamas.

The following were the other major changes to the nominal capital of the listed companies:
1. Scotiabank- one for four bonus (Feb.) Issued capital from 59,850,000 stock units to 74,812,500 stock units.
2. L J Williams - issued 12 million ÔB' stock units (Oct), raising $22.2M.
3. Royal Bank- two for seven bonus issue (Nov), raised issued capital from 114,676,435 to 147,441,131 st. units.

Total nominal capital, excluding suspended companies, increased from $1,179,194,008 at the beginning of 1996 to $1,589,285,334 at the end. The market capitalisation increased from $6.55B to $8.7B by the end of 1996, an increase of 34.19%.

CIBC WI Holdings had the largest market capitalization of $1.6B at the end of the year. Royal Bank had the second largest market capitalization of $1.49B beating the 1995 leader, Republic Bank into third place with a market cap of $1.36B.

There were two takeover attempts. Republic made a takeover bid for Bank of Commerce (BOC) and Trinidad Cement Ltd (TCL) made a bid for Readymix WI. Republic's bid came two years and one week after the first bid was scuttled by its stockholders at an EGM. Republic again failed in its effort to acquire BOC outright. It now controls 68.22% of the outstanding capital of BOC.

TCL, which at the end of 1995 held 39.3% of the outstanding capital of Readymix WI Limited, made a bid at $1.35 per stock unit to acquire the rest of Readymix's stocks. TCL received acceptances for 3,163,733 stock units, which, together with the 4,713,817 stock units acquired in December of 1995, brought its holding to 65.65% and gave TCL effective control of Readymix.

In August, Mora Oil Ventures became the first stock to be listed on the second tier market. It was listed at $2.75, the price consequently declined to $2.40. There have been trades of 458,514 stocks units in 1996.

Government divested a further 15% of the issued capital of National Flour Mills in November by an Offer for Sale at $2.50. The Offer was marginally oversubscribed.

In terms of company results, 1996 would be remembered as a year of sharp contrast. On the one hand Republic's 1996 after tax profits of $128.534 million was the highest by any company in the history of the Stock Exchange, while Neal and Massy Holdings recorded the largest loss of $75.064 million. Overall most companies performed better in 1996 than in 1995.

Economic News

1996 was a year of consolidation for the new government, which was slow to get out of the blocks in some areas. However, in its first budget, the Government stressed continuity of economic policy. This boosted the confidence of investors and the public in general. This enabled the Government to conclude negotiations for the LNG plant and the Farmland Misschem ammonia plant. ISPAT has signalled that it intends to build a new DRI plant.There are also negotiations on the way for the building of a US$1.20 billion aluminum smelter.

Overall the economy grew by 3.1% in 1996, compared with 2.4% in 1995. The petroleum sector grew by 1.7%, while the non-petroleum sector grew by 3.5%. The petroleum sector benefited from higher-than-expected oil prices. Unemployment was reduced from 17.8% to 15.1%. The rate of inflation averaged 3.6% for the period January to November 1996, compared with 5.4% for the corresponding period in 1995.

The only worrying factor is the continued pressure on the Trinidad and Tobago dollar. At first, it was felt that the pressure was due mainly to the uncertainty over the new Government. Although this is true to a certain extent, the mismatch between supply and demand is an even more compelling reason. A paradox exists in the economy. There is a balance of payment surplus and our reserves are enough for four months of imports, yet there is short supply of foreign exchange. The problem has arisen because large foreign exchange earners have not been converting their foreign currency into Trinidad and Tobago dollars.

Prime interest rates, which stood at 14% in December 1995, rose to a high of 17.5% during the year. This upward trend was the result of the Central Bank's tightening liquidity in order to protect the TT dollar and keep inflation in check. At the end of the year, most commercial banks indicated that from January 1997, they would reduce their prime lending rate by about 1.5%.

We believe that economic activity would quicken in 1997. The Government has budgeted $1.7 billion for public sector investment in 1997. It is left to be seen how much of this would be implemented. The construction of the Farmland Misschem plant and the LNG plant would begin in earnest in 1997. There is also the prospect of the start of the new international airports at Piarco and Crown Point, Tobago. It is expected that the petroleum and petrochemical sectors will perform well in 1997 and the budgeted oil price of US$20.00 is sustainable. The non-petroleum sector should also show some growth, especially as the currency has depreciated slightly.

Market News:- Activity

Trading was dominated by the big trade of 52,605,000 CIBCWIL stocks on January 9, 1996. This accounted for 43.53% of all stocks traded for the year. Listed hereunder are the top five stocks by volume.

The Banking sector was the most active with trades of 69,617,307 stocks or 57.60% of all trades. The manufacturing sector followed with trades of 33,416,421 stocks or 27.65% of all trades. Rounding off the top three was the conglomerate sector, with trades of 9,800,682 or 8.11% of all trades.

Stock Price Changes

Advances outnumbered declines by seventeen to four. Caribbean Communications Limited recorded the largest increase of 69.70% moving from $1.65 to $2.80, after reaching a high of $3.01 in November. LJ Williams ÔB' had the second largest advance of 69.64%, moving from $1.12 to $1.90. LJ Williams ÔA' had the third largest advance of 66.67%, moving from 12¢ to 20¢. ANSA McAL had the fourth largest advance of 48.81%, moving from $4.20 to $6.25. Rounding off the top five was Scotiabank, with an increase of 38.63%, moving from $8.88 (adjusted for 1 for 4 bonus) to $12.31.

Bank of Commerce had the largest decline of 27.75%, moving from $6.92 to $5.00. TCL had the second largest decline of 17.43%, moving from $4.99 to $4.12. This contrasts with its 227.21% gain in 1995. PLIPDECO had the third largest decline of 17.43%, moving from $2.96 to $2.60. West Indian Tobacco Company had the fourth largest decline of 4.70% moving from $7.45 to $7.10.

Prognosis for 1997

As stated previously, we believe that the economy will be more buoyant in 1997. As such, there is every chance that the Composite Index would rise again in 1997. We do not expect a market-wide bull, but advances in selected stocks.

Our picks for 1997 are: Trinidad Cement Limited, Readymix WI Limited, Royal Bank and Bank of Nova Scotia. Other stocks to watch are Neal and Massy, PLIPDECO, Angostura and Guardian Holdings. If Republic's problems end amicably, it could be the best buy of the year.

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