Going public – Bank of SVG

Bank of St.Vincent and the Grenadines Ltd, formerly (National Commercial Bank (SVG) Ltd), is currently in the process of transition from a private limited company with a small number of shareholders to a public company with a much larger number of shareholders.{{more}}

Vincentians will soon be afforded the opportunity to be among the larger pool of shareholders and this article is intended to provide some insights into what is meant by “Going Public”.

When a company goes public, it is the first time the general public will have the ability to buy its shares. Companies fall into two categories, private and public. A privately held company has fewer shareholders and its owners don’t have to disclose much information about the entity. It usually is not possible to buy shares in a private company. You can approach the owners about investing, but they are not obliged to sell you anything. Public companies on the other hand, often sell portions of themselves to the public and they trade on a stock exchange. Going Public therefore means a company is switching from private ownership to public ownership.

Essentially, Going Public or participating in an Initial Public Offering (IPO), is the process by which a business owned by a few individuals is converted into a business owned by many. It involves the offering of part ownership of the company to the public through the sale of equity securities, commonly referred to as shares. As a first step, the Government of St.Vincent and the Grenadines, the single shareholder of National Commercial Bank (SVG) Ltd, invited Eastern Caribbean Financial Holdings (ECFH), the parent company of Bank of St Lucia, to share in the ownership and future development of the institution. Ownership of 51 percent of the shares was transferred to ECFH, leaving, in the process, 49 percent of the shares with Government. It is from this latter portion of shares that an initial public offering will be made to the public, and the intention is that Vincentians near and far will avail themselves of the opportunity to share in the ownership of the bank.

There is a wide range of benefits that private companies and their shareholders can obtain from Going Public. The single main reason for Going Public is to increase the equity base of the company, thus allowing for future expansion and growth without the burden of interest payments which are usually associated with the use of borrowed funds. A listing of the company on an exchange enables existing shareholders to raise substantial capital for their company by issuing shares to the public in exchange for a calculated price per share. This ability to raise funds from outside investors by the issue of shares is perhaps the most valuable of all benefits that accrue to companies upon going public. An immediate benefit enjoyed by a newly listed company is the improvement in its overall financial position. The injection of substantial equity funds greatly improves the company’s balance sheet ratios. With such capital reinforcement and good management, higher earnings and dividend payments are likely to follow.

An intangible benefit is the greater prestige and status could accrue, as Going Public will raise the level of awareness of the company and its products in both the investment community and the public generally. Along with the prestige and better ability to promote the company, Going Public may also improve the company’s ability to attract high-quality employees. In addition, the successful company will likely have access to capital markets for future needs. Generally, a company’s ratio of borrowed funds to equity funds improves after the initial public offering, which means that the company may be able to obtain more loan terms from lenders in the future. While we have been focusing on the advantages of Going Public, let us recognize that there may also be disadvantages. Going Public is an expensive process. Typical expenses associated with a public offering include legal and accounting fees, filing fees, travel costs and underwriting expenses. In addition, it is viewed in some quarters as a disadvantage, the fact that public companies operate under close scrutiny and must comply with reporting requirements under the Eastern Caribbean Securities Regulatory Commission.

Any business that is considering Going Public must know the advantages and disadvantages of such a decision. In 1602, the Dutch East India Company was the first company in the world to issue stocks and bonds in an initial public offering. To date, the

World’s largest IPO was completed by the Agricultural Bank in China in 2010. There is no logical reason why an IPO by Bank of St.Vincent and the Grenadines should not be a success, and, as patriotic Vincentians, we should all have the desire to be associated with its success.