Susan Gordon, Business Reporter

Rhys Campbell - File

Carreras Limited will dole out to shareholders - including its parent Rothman Holdings - almost all of the $3.5 billion it had set aside to pay as penalty on a tax assessment, but only a tiny fraction of which the courts held it was liable.

With this decision, topped up by proceeds from the winding up of the Carreras subsidiary, the Cigarette Company of Jamaica, directors have promised a dividend of $10.30 per share for the quarter to March 31, or a total payout of $5 billion.

About $1 billion or the total payment, or $2 a share, will come from profit.

"The (windfall) proceeds are from the winding up of the CCJ," Carreras manager for corporate and regulatory affairs, Rhys Campbell, told the Financial Gleaner.

"We had set aside some money for the penalties," he said. "(But) ... the penalties were significantly less than what we had set aside."

The dividend decision, which director posted with the Jamaica Stock Exchange a week ago, has driven up Carreras' stock price. The company had for a long time traded around the $80 mark but closed yesterday at $87, having reached a high of $91.99 on May 20.

Analysts do not expect a fall back to its old trading pattern until after June 3, the benchmark date for shareholders on record who will be entitled for the dividend.

"I do not think it will go back to its average price of $80 until after the June 3, x-date," said Donnette Johnson, senior equity trader at Jamaica Money Market Brokers.

2004 dispute

The windfall that the company is now distributing arose from a 2004 dispute between Carreras and the Government's Taxpayer Audit and Assessment Department (TAAD) when the company decided to shut down CCJ and move its manufacturing of cigarettes to Trinidad and Tobago.

Carreras subsequently said it is now solely a distributor of cigarettes.

TADD assessed Carreras for $2.17 billion for five years of back-taxpayers - 1997-2002 - which the tax authorities held were distributions made to the then Carreras Group rather than legitimate payments.

Total debt

The tax authorities applied $3.54 billion in payments to the assessment, thus assuming the company's total debt at $3.57 billion.

However, last October, the Revenue Court held that while Carreras had to pay over the income tax, the penalty liability was a mere $108.6 million or a little over a quarter of one per cent of the original amount.

susan.gordon@gleanerjm.com