Lok Jack, NCB considering alternatives to vendor loan in Guardian takeover
Trinidadian businessman Arthur Lok Jack, a key shareholder in Guardian Holdings Limited, GHL, is giving consideration to adjusting a three-year loan arrangement with NCB Financial Group in a bid to appease the finance ministry in Trinidad and Tobago and close the long-standing takeover deal that awaits regulatory approval.
Notwithstanding the dramatic twists and turns in NCB’s takeover bid for GHL, the bank’s stock price rose about one per cent at midweek.
Both Lok Jack and the banking group telegraphed that they are weighing the concerns of regulators over a vendor loan that key GHL shareholders had committed to NCB as part financing for the acquisition of minority GHL shares, and were seeking to comply.
NCB, the largest and most profitable banking conglomerate in Jamaica, ultimately owned by Michael Lee-Chin, wants to increase its stake in Guardian, the largest insurance company in Trinidad, by 32 per cent to 62 per cent. The latest offer closes on April 30, or 15 months after the deal to buy more shares was initially announced.
The ministry wants Lok Jack and the Ahamad family, the other key shareholder, to receive cash for the sale of shares, rather than offering a three-year loan valued at US$45 million. in lieu of payment.
The absence of a cash transaction would breach the Foreign Investment Act, according to Finance Minister Colm Imbert.
“The key shareholders would adhere to this requirement, thereby complying with the letter of the law,” said Lok Jack on Tuesday.
Lok Jack said that there are different opinions as to how this could be transacted. The simplest way would be a set-off, that is, NCB pays the key shareholders US$45 million less for their residual shareholding and issue a debt instrument to the key shareholders for US$45 million, which would be paid over 36 months at 6.5 per cent interest.
This is not dissimilar to a person selling a property and giving a mortgage to the buyer, he added. “In other words, the key shareholders would not have to receive the US$45 million in cash and then lend it back to them on the same day, which is, in effect, an exchange of cheques,” he said.
He acknowledged that the finance ministry appeared not to be in agreement with the set-off, but wants the key shareholders, be compensated for their holdings in the same manner as other minority shareholders.
NCB Financial says it is awaiting more detailed instructions from the ministry to determine its next course of action.
“Once we and our advisers have seen details of the ministry’s position in relation to the vendor financing, and any other issues (if any) to be addressed, we will revisit the manner in which we propose for settlement to occur and any other revisions to our approach that may be required. Thereafter, a further release and or further notice will be issued,” the bank said in a market filing.
The law, as described by Minister Imbert, requires payment in an internationally traded currency and, secondly, through an authorised dealer such as a bank.
NCB’s current takeover offer is valued at US$207 million, or US$2.79 per share, nearly a fifth of which would have been financed by two key GHL shareholders had the T&T finance ministry not intervened.
The vendor loan was meant to facilitate the closing of the offer, according to Lok Jack.
“In order to assist NCB in funding the all-cash transaction at the new increased price, the key shareholders offered to loan NCB the sum of US$45 million so that the transaction could be finalised as quickly as possible, since the funds being loaned were derived from the cash already received by the key shareholders from the first transaction – that is, the sale of 29.9 per cent,” he said.
NCB Financial first acquired its stake from the Lok Jack and Ahamad families in 2016, then sought an additional 32 per cent in late 2017 at a price of US$2.35 per share. That offer was upsized to US$2.79 per share after minority owners of the stock objected.