Kerzner International CEO Butch Kerzner made it clear while appearing as a guest on the radio Love 97 Sunday programme “Jones and Company” that his company will not be paying any dividends to its shareholders.
That fact has created some confusion for Atlantis employees who spoke with the Journal recently in response to last week’s announcement that the company will give its workers the first option to purchase the one million shares it is offering.
One employee thought it was a no-win situation to buy shares and not receive any dividends.
Mr. Kerzner said the company will in the coming years continue to focus on growing and therefore will not be taking any capital out of the business.
Kerzner is at this time involved in several big projects, including the $1 billion phase III expansion of the Atlantis resort on Paradise Island; the building of Atlantis, The Palm in Dubai; a One & Only luxury hotel in Cape Town, South Africa; and a casino development in the United Kingdom.
Mr. Kerzner said it would be “short-sighted” to pay dividends.
“Our profits that we’ve made, we’ve reinvested back into the company,” said Mr. Kerzner, who appeared on the show alongside Anwar Sunderji, chairman of Fidelity Merchant Bank and Trust Limited and Governor of the Central Bank Julian Francis.
“We have chosen to take a very medium term view on our business and people getting into our company should really understand…We believe that over time – and hopefully we are proved to be correct, but we can’t promise it – if we continue to build and reinvest and make this product outstanding, we would have created something of great value and that would be the appropriate time to potentially pay dividends,” Mr. Kerzner said.
Mr. Sunderji, meanwhile, explained that there is still a great opportunity to benefit from an investment in Kerzner International through capital appreciation.
He said that year-to-date, the Kerzner stock has appreciated by 12 percent. Over the last 12 months, it went up by 50 percent, he added.
“So while dividends are traditionally in the Bahamas an important part of the return,” Mr. Sunderji said, “this is the first international stock that we have that is a growth stock where dividends are not being paid and all the profits are being reinvested in the company and returns are being reflected in the appreciation of the company’s stock prices.”
The offering represents in excess of $40 million in stock and will be traded on the Bahamas International Securities Exchange. Bahamian Depository Receipts (BDR) has been created specifically to enable access to the Kerzner shares.
The BDRs will be issued by Fidelity, showing ownership in Kerzner. Ten BDRs will represent one Kerzner share.
Governor Francis explained that exchange controls do not permit Bahamian residents to invest outside of the Bahamas unless they are willing to pay a special premium on whatever the investment might be.
The show’s host, Wendall Jones, then asked why it would not make sense for a Bahamian to buy shares in Kerzner directly on the New York Stock Exchange.
“That would be an added cost to that investor compared to the holder of those shares outside the Bahamas,” Mr. Francis said. “Someone in New York would buy those shares for $100 and the Bahamian would have to pay $125 for them.”
Mr. Kerzner explained that there will be no difference in the value of the shares traded on the NYSE and BISX.
Mr. Sunderji added that investors who are looking to get a quick return on their investments should probably not purchase Kerzner shares.
“If you’re looking for a return over a long period of time, then you should consider investing in this security,” he said. “Stock prices go down as well as they go up and the key is to educate Bahamian investors to look at investing in equity markets over a long period of time.
“The problem that we have in the Bahamas is that people don’t actually do that. They buy securities and they have to sell them to pay school fees and they have to sell them because they’re going shopping. They’re not holding securities long enough to benefit from ownership of equity in well run companies and that’s fundamentally the problem.”
Mr. Sunderji said dividend-paying stocks seem more attractive to Bahamians because most Bahamians look at equities as just another version of a deposit of some kind.
“Equities are far more risky than leaving money in the bank and you shouldn’t be expecting an interest rate or a dividend return on an equity investment and fool yourself into thinking that it’s the same,” he warned. “It isn’t.”