Jamaica Pegasus hotel in New Kingston. - File

Four potential bidders are already lined up to buy the Government's 60 per cent stake in Pegasus Hotels of Jamaica Limited, operators of The Jamaica Pegasus, the four-star hotel located in the heart of the New Kingston business hub.

But the success and speed of this divestment route of the offloading the 7.1 million shares, valued at just under $900 million and held by the Urban Development Corporation (UDC), is now hinged on Pegasus' majority shareholders pushing through at an emergency shareholders meeting called for next week, certain rule changes designed by the hotel's board.

Scotia DBG Investment, the lead broker for the equity sale is making it clear that the four parties, the names of which it declined to divulge, have expressed only initial interest in taking up the shares.

The interested takers are said to be both Jamaican and foreign investors.

"Persons have expressed initial interest, but it's just an initial interest, and for it to move from an initial stage they will have to get more information which, as the project proceeds, will be disclosed in terms of the exact methodology that we are going to use to get the shares sold," Lissant Mitchell, Scotia DBG's senior vice-president, told the Financial Gleaner.

Actual pricing

The arranger for the deal said a valuation has been commissioned to arrive at the actual pricing of the shares, held by National Hotels and Properties Limited (NHP), a wholly owned subsidiary of the UDC.

The state-run Development Bank of Jamaica (DBJ) is conducting the Government's divestment exercise.

"That valuation, to a large extent, will guide the process as to pricing," according to Mitchell.

"The next thing is that potential purchasers will have to make an offer for the shares."

Based on the $12.51 price at which those shares last traded on the Jamaica Stock Exchange, their market value is $898 million.

The valuation is not the only thing holding up the sale of the swanky hotel of more than 300 rooms that rise 17 floors to make it one of Kingston's better known landmarks. The Government's divestment people are keen on removing what they see as a potential obstacle to the sale of the shares.

"The company has called an EGM (emergency general meeting) to amend the articles, and once that is done then the project will continue," the Scotia DBG official said.

The EGM will be held next Tuesday, May 12.

Minority directors

Mitchell, who pointed out that Scotia DBG as lead broker on the project was adviser to DBJ on the sale, and not mandated to speak on matters relating to changes in the articles, did confirm that the timeline for the divestment of the shares would be dependent on the successful passage of the proposed resolutions at the EGM.

Documents circulated to Pegasus Hotels shareholders explained that four resolutions will seek to remove the entrenched right of all shareholders, including NHP, to nominate or elect directors.

An explanatory notice toinvestors points out that currently the election of the two minority directors takes place at annual general meetings of the company, and NHP is excluded from voting, which means that the top two minority shareholders, who together hold 24.14 per cent of the shares and just over 60 per cent of the minority votes which elect the minority directors, could - were they to act in concert - effectively control the election of the two minority directors.

The enterprise team charged with undertaking the divestment, as well as professionals engaged to manage the process, the documents disclosed, have advised that private sector investors would be unresponsive to an offer to purchase controlling interest in a company where a few shareholders, acting in concert, possess the legal power to appoint two persons to the board.

A vote of not less than 75 per cent is required for the resolutions to be passed, failing which the divestment strategy would have to be changed.

The alternative course of action outlined would involve securing board approval to sell the actual hotel and its assets as a going concern.

This, according to the documents, would delay the divestment and ultimately see Pegasus being delisted from the Jamaica Stock Exchange (JSE) as a candidate for liquidation.

Should the amendment not pass, the documents also assert, there would be downward pressure on the purchasing price and, consequently, a lower compulsory take-over offer to the remaining shareholders, as required by JSE rules.

The Pegasus has, for years, been a sought-after asset.

Only recently, media reports claimed that Jamaican-Canadian billionaire, Michael Lee Chin, whose brother, Wayne Chen, is the UDC's chairman, has long expressed an interested in acquiring the Government's stake in Pegasus Hotels. Chen, while not confirming or denying the reports, has said he would recuse himself from the process, should the issue arise.

Board member can not bid

Pegasus chairman John Issa, who runs the family-owned SuperClubs international chain of resorts, says as board member he also could not bid on the property.

Pegasus posted net profits of $55.2 million for the year-ending March 2009 on revenues of $1 billion.

This was an important improvement on the $39 million net profit last year on revenue of $676.2 million.

On its balance sheet dated March 2009, Pegasus has assets worth $5 billion.

sabrina.gordon@gleanerjm.com