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JMMB eyes capital markets as sweet spot in 2015

Published:Wednesday | March 4, 2015 | 12:00 AM
JMMB Group office at Haughton Terrace, New Kingston.

With local companies looking around for cheaper financing, Jamaica Money Market Brokers (JMMB) said on Monday that it has started the year with several planned transactions in the works.

While declining to name the companies or the areas of business in which they operate, the brokerage said its capital markets unit is working with several companies to structure financing for 2015.

"The capital markets space offers several alternatives to traditional bank debt that are more beneficial in terms of less restrictive collateral requirements and covenants and offers longer-term financing," said JMMB head of corporate communications, Patricia Valentine.

She said the transactions under consideration include private placements and the public issue of debt, equity and preference share issuances, the details of which would be disclosed closer to their execution or offers.

"We will target companies seeking to raise capital to refinance and consolidate bank debt, fund acquisitions and to expand their businesses," said Valentine.

"We are also targeting companies desirous of taking advantage of the benefits of listing on the junior market of the Jamaica Stock Exchange (JSE), companies that can reduce their interest cost and increase their cash flows by restructuring their balance sheets and refinancing existing over-collateralised bank debt."

The company's last known financing arrangement was done on behalf of real estate start-up 138 Student Living Jamaica Limited, which floated ordinary and preference shares in an initial public offering and was listed on the JSE in December.

"This was a signature transaction not just for its unique transaction structure, but also because it could revolutionise the way that tertiary-level educational institutions and, indeed, other institutions with similar infrastructure needs will be able to fund infrastructure development in Jamaica," said Valentine.

"In this unique financing structure, companies do not need to own all the assets that are used in their business - for example, a hotel operator does not need to own the physical land and buildings; a manufacturer does not need to own the factory building. What we observed is that many companies own significant non-income producing assets and these assets can be monetised and the proceeds used to liquidate expensive bank debt and provide working capital for business development," she said.

JMMB's aggressive push into this line of business comes as it and other securities dealers are restructuring their operations away from dependency on repos for earnings.

JMMB is one of the largest holders of repos. At the end of its financial year in March 2014, the company had $143 billion of repo liabilities on its books, which were outpaced by just $3 billion by investments/resale agreement assets of $146 billion.

Nine months later, at December 2014, the company had favourably widened that gap. Although repo liabilities rose to $147 billion, the company grew investments/resale agreement assets more robustly to $159 billion, to outpace its repo liabilities by close to $12 billion.

As a result, while its total liabilities grew by close to $11 billion to $198.8 billion, its total assets grew by more than $12 billion to $219 billion in the same period.

For company's seeking to diversify investment income, Valentine said that JMMB was also focusing on growth in bond trading amid a shift in investor interest away from poor-performing local and regional equities market.

"Over the last three quarters, we have experienced an increase in bond trading activities. This has been mainly so due to the highly liquid US dollar money markets globally, which has led to lower repo rates paid to clients," said Valentine.

JMMB, at the nine-month mark in December, reported a rise in net revenue from $6.56 billion to $7.8 billion year on year, but outsize expenses - which the company linked to expansion of the group through the acquisition of Trinidad businesses IBL and AIC Securities - led to a fall in net profit from $2.35 billion to $1.95 billion.