It was simply a case of market forces at work.
That’s how General Manager of the Barbados Stock Exchange (BSE) Marlon Yarde described the recent block trade on the local exchange, which has led to a takeover bid by SLU Beverages Ltd of Banks Holding Limited.
Amid scrutiny and concerns raised by leading economist Dr Justin Robinson about trading on the BSE following the acquisition, Yarde insisted there was nothing unusual about the transaction.
“The BSE does not control the level of trading on the board of the Exchange. The BSE provides a regulated and transparent marketplace for investors to trade their shares as often as they require.”
Last week, the Brazilian company Ambev acquired 13.1 million BHL shares paying some $52,682,912.00, to become the single largest shareholder in the drinks manufacturing company with approximately 40 per cent of the shares. BHL shares were listed at BDS$2.49 per share the day of the stock purchase.
In a strong statement Dr Robinson took issue with the rate at which the shares were sold and wondered whether Ambev “was paying a premium or getting a steal of a deal.”
But Yarde told Barbados TODAY share prices were determined by the interaction of investors.
“The price that a person was willing to sell their shares is based on their own particular economic situation at the time and their need for cash; whether they will make a gain/profit on the sale. If they are in an environment of falling prices they may wish to place a floor on the price they are willing to sell or maintain their holdings in anticipation of the price rebounding.”
Drawing on an analogy of the operations of a fish market to explain how the exchange functioned, he said the BSE, which is regulated by the Financial Services Commission, only provided detailed and “accurate information” on a timely basis to ensure that shareholders can make informed decisions.
“You go to the fish market to buy fish, a particular fish vendor is selling his dolphin at $4.00/lb, you look around the market and you see many vendors selling dolphin and they have bountiful supplies. You move down the line and you approach another vendor and he/she is selling his fish at $3.90/lb. There is an abundance of dolphin so as a consequence the vendors who want to sell their fish will try to undersell their colleagues once their selling price does not go below the price they paid the fishermen. All things being equal, if you negotiate hard enough you will get your fish at the best price the market would allow.
“In the opposite direction, if the supply of dolphin is limited and the demand is high, the fish vendors may likely be able to demand $8.00/lb for his dolphin. The price is determined by the interplay of the participants in the market and not the market itself. The price of shares listed on the stock market for trading is determined in the same way.”
Yarde further dismissed a discrepancy cited by Robinson, about the book value of BHL shares, which stood at $4.81 cents on the company’s balance sheet on May 31, 2015 compared to the share price on the stock exchange, which was $2.49.
He insisted there was nearly always a disparity between book value and market value, since the first “is a recorded historical cost” and the second is based on the “perceived supply and demand for an asset”, which can vary based on the investors’ perception of the future prospects for the company.
Ambev, is offering to purchase all outstanding shares at BDS$4 (US$2) per share.
But in a counter move, BHL issued a notice urging shareholders not to make any decisions until a valuation of its shares has been conducted.
Dr Robinson had also suggested that the low market value of the BHL shares was due to infrequent level of trading on the BSE and he questioned whether this left companies on the exchange grossly undervalued and vulnerable to cheap takeovers.
But in response Yarde admitted that while he would like to see “greater volumes” traded on the BSE floor, activity for the first nine months of the year was in fact up.
“The total volume of shares traded increased by 284 per cent while total value of shares traded increased 456 per cent when compared with the corresponding period in 2014. The Regular and Put Through Markets recorded increases in terms of both volume and value while there was no activity on the Junior Market.
The Block Trade Market recorded one transaction that saw 13.1 million shares in Banks Holdings Limited trading at $4.00 per share; there were no block trades during 2014. Excluding extraordinary transactions, which occurred (Banks Holdings Limited – 13,170,728 shares, $52,682,912) total traded volume and value would have increased by 69% and 115% respectively.
With respect to the Bond Market, the BSE head revealed that at the end of September 27 Barbados Government Debentures and 12 Barbados Government Treasury Notes traded on the board of the Exchange as compared to 23 Barbados Government Debentures and fifteen 15 Barbados Government Treasury Notes trading for the corresponding period in 2014.
He also disclosed there were a total of 194 trades occurring on the Bond Market resulting in a face value of $30,666,000 trading as compared to 179 trades occurring, resulting in a face value of $5,471,000 trading as at September 30th, 2014.