Frankly Speaking Episode #1 Recap: Investing in Caribbean Utilities

In the inaugural episode of Frankly Speaking, we spoke with IBV Capital CEO Talbot Babineau about a unique investment strategy in the Caribbean that paid significant dividends to all parties involved. We discussed the investment strategy from beginning to end, as well as touched on the scalability of such a complex investment strategy in the future. 

IBV Capital & Ascendant Group Limited

IBV Capital’s target investment was a company called Ascendant Group Limited, a Bermuda-based energy provider which is the parent company of Bermuda Electric Light Company Limited (BELCO), among others. As “BELCO was the ‘crown jewel’ of the  Ascendant” IBV saw a unique investment opportunity (Babineau). 

Founded in 1907, the company had been running for over a century when IBV got involved in 2015. 

“It was around a $50 million company, had about $9 million in cash, and no debt on its balance sheet,” explained Babineau, making it an attractive opportunity for IBV. 

Entering at $5 a share in 2015 and exiting at $36 a share in late 2020, IBV was able to net a positively high return on equity for a utility company.

How IBV Undercovered This Source of Value 

In describing how IBV was able to secure such an unusual and lucrative investment, Babineau explains that it all came down to sourcing and IBV’s structure. 

“I think it all starts with sourcing,” said Babineau, “…and because of our flexible mandate we could go into jurisdictions that are a little bit more unconventional in nature.” 

Aside from simply sourcing creatively and unconventionally, IBV also identified levers that Ascendant Group and BELCO could specifically pull to improve their operations and finances. These moves were designed to improve the inner workings of the company, as well as its ability to attract more conventional investors. Specifically, IBV focused on improved operational efficiency, the opportunity to optimize the balance sheet, and a robust regulatory compact.

Producing Value From An Improved Regulatory Structure 

When IBV first got involved in 2015, the regulatory structure of the company was in its infancy. While this is normally ideal for investors, Babineau explains that a more robust and conventional regulatory structure made BELCO much more attractive to companies like Algonquin Power & Utilities Corp. (APUC), the current owners of Ascendant Group Limited. 

Over the five-year period, IBV sought to create a regulatory environment that was more reminiscent of the structures in North American utility companies. This way, investors would see the company as a secure, long-term investment with tremendous cash flow. 

Factoring in Liquidity 

On the topic of liquidity, Babineau notes that it was indeed an issue that IBV Capital had to take into account.

“We treated this as a private investment or quasi-private investment based on the level of liquidity that was involved,” said Babineau. 

He explains that their plan boiled down to three distinct strategies: buying stocks on the Bermuda exchange, targeting large blocks looking for liquidity, and simply trying to buy the entire Ascending Group outright. While the last strategy failed, IBV Capital was able to become the largest shareholder in the company with a minority interest. 

Influencing A Seasoned, Established Company

To influence such a well-established company as a foreign investor, Babineau became incredibly involved on the island and created complex strategies meant to create a win-win situation for all involved. In avoiding the typical binary relationship between investors and the board, investors and customers, etc., IBV Capital was able to gain trust and create an environment that benefited all parties. 

IBV’s Role in The Sale To Algonquin

The final step in the process was facilitating the sale to Algonquin, in which IBV became involved in several ways. Mainly, there were fears that the company would sell far below its value and that stakeholders would be wary of new ownership. IBV Capital stepped in by quelling fears with stakeholders and facilitating a sale price that would best reflect the true value of the company. 

Babineau notes that he made a point to speak with government officials, board members, stakeholders, customers, etc to develop a plan that would make sure everyone involved would benefit from the sale. Rather than use brute influence to force a deal, his team crafted a win-win plan for all parties involved. 

Babineau notes that this strategy, while complex and hands-on, is scalable and could be used in any number of conventional and non-conventional jurisdictions. Given their recent performance, IBV Capital is certainly an investment management firm that should be on any serious investor’s radar.

Check In For Our Next Episode! 

If you haven’t already, check out our full 30-minute conversation with Talbot Babineau here, and stay tuned for future episodes with equally esteemed guests! 

Our next episode of Frankly Speaking will take place on May 26th. Titled “Beyond Consultation: A Win-Win Road Map to Indigenous Participation,” we will speak with sector experts about how proper engagement with Indigenous communities can lead to mutually beneficial commercial success, and engage in a wide-ranging discussion about financing methodologies, recent landmark case studies, and more. Click here to register!