The KGF catalyst

Kontiki Growth Fund plans more local investments

by Dionisia Tabureguci

NEW kid on the block at the South Pacific Stock Exchange Kontiki Growth Fund (KGF) has wasted no time in showing that it is here to do business. Late last month, it held its first annual general meeting for shareholders since it started operations in 2005 and it looks like a company shaping up to be a conduit for local businesses to make it to the stock market. In a way, this was to be expected, considering that there are the likes of Jack Lowenstein and John Courtney on its board of directors plus the heavy involvement of Kontiki Capital Ltd as its manager. 

Lowenstein and Courtney are well known market advocates and are also founders of Kontiki Capital Ltd, which acts as advisor and manager to Kontiki Fund Limited (KFL), an open ended managed fund that has heavily invested in SPSE-listed companies. KFL is generally not affordable to Fiji investors because of it requirement of US$25,000 as usual minimum subscription. But now, local investors can participate in KFL through KGF, which had invested 27 percent of its total equity in KFL by December last year. History shows that KFL has had a colourful seven and half year life in terms of returns on investment, and quoted in US dollars, was running on par with returns in both the Australian and US stockmarkets.

This is the type of management that Kontiki Capital is applying to KGF, which listed on SPSE early last year. KGF raised F$3.5 million of investment fund in that listing and within the first year of its operation, it has managed to invest most of that fund in Kontiki Fund as well as in a number of private equities. “Since its establishment, KGF has invested a total of $3.1 million,” Lowenstein reported in his capacity as chairman of Kontiki Capital. “Of this, $0.8 million has been invested in Kontiki Fund and $2.3 million in private equity. With the exception of a $0.6 million tranche invested in the Kontiki Fund in December 2004, all investments were made during 2005. Each investment was made after conducting extensive financial, legal and other due diligence and required appropriate arrangements to be negotiated and documented. In addition, the manager continues to assist each investee to grow and develop, through board representation and direct advice,” Lowenstein said.

“To date, officers of the manager sit on the board of all investee companies. Where appropriate, the manager has also brought in appropriately skilled and independent persons to represent KGF’s interests at board level.” By the end of 2005, Kontiki Growth Fund’s portfolio of investments included: Kontiki Fund, Savusavu Harbourside, Oceanic Communications, Unwired Fiji, Halabe Investment, Bligh Water Shipping, Suilven Shipping. New companies in this list included Oceanic Communications, Savusavu Harboursides, Bligh Water, Suilven Shipping and Unwired Fiji.

Performance by each company was mixed, contributing to an overall net profit after tax of $127, 714 for KGF.

In his report, Lowenstein said that this result was achieved on the back of dividends received from Halabe Investment and the continued capital growth in the Kontiki Fund investment. KGF managed to declare a dividend of five cents a share for the year and last traded at $1.03 cents per share just before the AGM.

Lowenstein said as manager of KGF, Kontiki Capital believes there are many private equity opportunities in Fiji with strong potential and which could fit KGF’s investment criteria neatly. “Discussions continue with a number of potential investee companies and the manager regularly receives new approaches. With this in mind, we believe KGF is ready to raise its next tranche of funds. Building funds under management is important for several reasons including the ability to invest in larger and potentially more lucrative deals, as well as a reduction in per share operational expenses of the fund,” Lowenstein said.

He added that for the long term, the fund aims to focus on 10 to 15 core investments for a reasonably diversified but small enough portfolio that would allow the manager to pay close attention to each investment.

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Market Movements

(March 16 to April 15, 2006)
Judging from the way stock prices have been performing, it may be some time soon before new and interested investors would find the cost of listed shares quite expensive. One very good example is the shares in Fosters Group Pacific Ltd (FGP), which last traded at F$27 per share. Last year's merger of South Pacific Distilleries (SPD) and Carlton Brewery Fiji (CBF), two sister companies of Australia-based Fosters Group Ltd, is still fresh in our minds as well as the concerns raised by some SPD shareholders on whether they would recover the expected capital loss that was to have resulted.
But, no one is complaining now. That share swap first saw a one into five CBF share split, where CBF was trading at F$58 per share. The resulting F$10.80 per share CBF post split shares were then offered to SPD shareholders in return for their SPD scrips which were trading at F$13.25 each. Barely six months later, that F$10.80 share is now worth F$27, a 40 percent capital gain in a matter of months. By the look of things, other stocks are going in the same direction. Flour Mills of Fiji (which went through a share split last December), Fiji Television Ltd, Rice Company of Fiji, Komtiki Growth Fund and even VB Holdings have all been experiencing price gains, making them more and more attractive as investment choices.
But at the same time, the price gain also means that stocks are becoming more expensive. This is the reason why stock advisors are always stressing the need to save, for it is during an Initial Public Offer (IPO) that stocks are at their most affordable and may even be the only time that most investors in Fiji can get a bite of these companies. In terms of price gains this month, RB Patel Group led the pack, gaining 13 cents in one trade to settle at $1.47. The market was relatively quiet, with just 50 trades taking place, against the 66 last month. With the general elections around the corner, this is expected, as investors are likely to wait-and-see. Share turnover and value were also lower but must not be taken as a reflection of the market trend - it has been quite bullish in the last few months.
Of nine companies active this month, eight recorded price gains, some of them recording 52-week highs. Kontiki Growth Fund inched its way up four cents in seven transactions while Fiji Television Ltd traded at $5.03 per share. Flour Mills of Fiji gained three cents to settle at $1.08 while Fosters Group Pacific Ltd shot up 10 cents and ended the month at $27.20. Other active stocks included Amalgamated Telecom Holdings, which gained a cent to settle at $1.01 per share, Fijian Holdings Ltd, up two cents to $3.60 per share and Communications Fiji Ltd, whose shares changed hands at a steady price of $1.90 per share. Fiji Sugar Corporation shares were also traded. After a long non-participation, FSC rebounded on a one cent gain to settle at 35 cents a share. It will be a stock to watch as it now has a new board and for the first time in years, the majority shareholder - the Fiji government - has made some certain indications about its plans for the company. During the month, it called for an extraordinary general meeting in which it appointed a set of new directors to spearhead the company into an industry that is undergoing a massive restructure.

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Market News

Fiji TV goes to Kiribati
Fiji Television Ltd has signed an exclusive two-year deal with Television Kiribati for the provision and distribution of its SKY Pacific services in Kiribati. In its announcement at the market, Fiji TV chief executive office Mesake Nawari said this would make it the third licensed SKY Pacific distributor in the region.
From Hotel to box factory
Fijian Holdings Ltd (FHL) has lost out on one of its major investments - 100 percent preference shares ownership in Sheraton Fiji Resort and Sheraton Royal Resort - which comprised 10 percent of its total investment and contributed an average of 15 percent of dividend revenue over the last two years. This was not a voluntary withdrawal on FHL's part but rather a result of the sale of 38 Starwood properties internationally to Host Marriot. Starwood is the parent company of Barton Ltd, which owns Sheraton Fiji, and Dubbo Ltd, owner of Sheraton Royal. The redemption (of shares) was conducted in accordance with a clause in the Preference Share Agreement, which gave Barton and Dubbo the right to redeem the shares if the resorts are sold either by a sale of the assets or sale of shares to a third party unrelated to ITT Sheraton. FHL reported that the preference shares have been redeemed at par for F$10 million with accrued dividends. FHL chairman Lyle Cupit confirmed to Fiji Business that the money has been ploughed into its investment in Golden Manufacturing Ltd, the largest maker of corrugated boxes in the Pacific region.
CFL profits up
Communications Fiji Ltd (CFM) announced a group profit before tax of F$1.012 million for the year ended December 2005, up from F$623,563 it recorded in 2004. Group chairman Hari Punja attributed the improved results to strong growth from the Fiji operations as well as the return to profitability of PNG FM. However, the company had to make a number of adjustments in accordance with the new accounting standards being instituted worldwide. Adjustments were also necessary to account for its investment in Unwired Fiji, which made a loss in its first year of operation last year. Net after tax results for CFM was F$217,012 compared to F$371,278 in 2004.
FDL profits
Amalgamated Telecom Holdings (ATH) was pleased with the 2.6 percent increase in net operating profit after tax posted by Fiji Directories Ltd (FDL), in which it has a 90 percent stake. This was the financial result for the year ended December 31, 2005. FDL chairman Lionel Yee said the profit was achieved on the back of a 10 percent increase in advertising revenue.
Beware of share scams
In other news, con-artists are doing their rounds again and Fiji's investor community has been warned about international share scams that have victimised investors in several countries around the world.
Capital Markets Development Authority chief executive officer Suren Kumar issued a warning at the market this month, informing it of these schemes. Some neighbouring countries, he said, encountered several scams and over the years, fraudsters have adopted new methods to circumvent the regulatory enforcements and as those loopholes are closed, they would look for fresh targets.
"One of the ways that these companies operate is to send bogus emails to people, promising a share in millions of dollars lost years ago in a failed and illegal investment scheme. This email bears all the hallmarks of a typical advance fee fraud, where promises are made to unsuspecting people in order to extract various fees from them, or worse still, gain access to their bank accounts," Kumar said.
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This stock market coverage was published as: "KGF ready to raise next tranche of funds?" in Fiji Islands Business, May 2006 edition, pp: 13,14.
Fiji Business is a publication in the Islands Business International portfolio and sold only in the Fiji islands as an accompaniment to Islands Business Magazine.

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