Derrimon projects $20 million savings from debt refinancing
Derrimon Trading Limited, owner of the Sampars chain of supermarkets, is predicting savings of about $20 million in interest costs, having secured a $625 million loan to refinance existing debt.
The loan will finance the early redemption of bonds issued by the company and liquidate short-term debts, said Chief Financial Officer Ian Kelly on Monday.
Derrimon, a distribution business and supermarket owner, remains one of the fastest growing companies on the junior market of the Jamaica Stock Exchange on which it listed in 2013. Its expansion, which included the acquisition of flavour maker Caribbean Flavours & Fragrances Limited, was fuelled in part by debt, which has now eclipsed its net worth or equity.
"Refinancing forms part of a major strategy for us," said Kelly, regarding the future path of the company.
The latest borrowing is a syndicated facility arranged and structured by Sagicor Bank Jamaica Limited and First Global Bank Limited. A syndicated facility is a loan offered through more than one lender to a single borrower in order to spread the risk. The 10-year facility will offer interest rates at 9.0 per cent and 9.5 per cent, or more than two percentage points lower than the company's existing debt servicing charges of about 11.7 per cent.
As a result of the loan, Derrimon will redeem its two existing bonds at $200 million and $250 million, as well as a US$1.5 million loan.
"We feel confident that we have the cash flow to finance the loan because we are strong enough and growing. In fact we will save about $20 million in annual interest costs with this loan," said Kelly, adding that the company expects the savings to start showing in Derrimon's financials by early August.
Up to March of this year, Derrimon's borrowings amounted to $1.2 billion while its book value was lower at $1 billion. A year earlier, its borrowing stood at $935 million and equity at $887 million. Still, within that one year span, Derrimon had made headway in reducing some of its debt, which in December 2017 fell to $754 million while its book value was higher at $1 billion.
"We expect to see an improvement in our debt to equity in nominal terms but also a reduction in our rates going forward," he added.
For the financial year ending December 2017, the group paid $169 million to service its borrowings, and paid out another $38.4 million in finance charges for the first quarter ending March 2018. In that quarter, the Derrimon group made $57.6 million in net profit on trading income of $1.9 billion.
The Derrimon group includes Sampars and Select supermarkets, as well as Caribbean Flavours. The company is also the owner of the Delect food brand.