Mon | Dec 16, 2019

Alignvest deal not a capital market transaction, says JMMB

Published:Friday | November 15, 2019 | 12:21 AMMcPherse Thompson - Assistant Editor – Business
General Manager of Trading and Treasury at JMMB Group, Kwame Brooks.
General Manager of Trading and Treasury at JMMB Group, Kwame Brooks.

General Manager of Trading and Treasury at JMMB Group, Kwame Brooks, says the US$240 million to be paid for Alignvest for a stake in regional insurer Sagicor Financial was not sourced from the capital market.

With reference to last week’s Financial Gleaner story about the declining value of the Jamaican dollar, which spoke to the JMMB-Alignvest deal as one of the big events in the market, Brooks countered that the transaction is being financed from the institution’s own portfolio activities, combined with loan funding.

He cited the sources of the funding as “a regional player in combination with multinationals”, and said the rest would be funded from capital.

As to the US$240 million at which the deal is valued: “The price named is not equivalent to a capital market transaction,” he said.

“The fact that we are buying the asset for a price [doesn’t mean] that we are actually doing a capital market transaction for that price, because the largest share of that money came from own book,” the treasury manager added.

He also referenced a tweet from the Bank of Jamaica, BOJ, saying the reference to JMMB in the forex article was exaggerated.

The BOJ governor disclosed a value of US$800 million or more on radio for capital market transactions year to date.

Citing that figure, Brooks said satisfying such volumes – which he described as large, relative to previous years – would serve to pressure the forex market; but he also noted that some of the impacts are based on market perception rather than actual events.

“It is the perception of the transaction because people are saying, ‘Okay, here is a big transaction, in the market. We don’t know how it’s funded. It means they are going to buy a whole heap of US dollars. So if we have US, let’s hold on to the US for a better price’. That, in itself, is what causes the problem,” Brooks surmised.

The BOJ also said in its tweet that while the JMMB transaction did not move the market, speculation about it did.

The foreign exchange rate has spiked above $137 and fallen back several times since February of this year. Its most recent climb briefly topped $142 this week, a new high for the exchange rate and a new low for the value of the Jamaican dollar relative to its main trading counterpart, the USD. During the earlier part of the year, the JMD traded below $125.

This week, the BOJ sold a total of US$90 million into the market between Tuesday and Thursday to augment supplies. The exchange rate ticked back down to $141.71 on Wednesday.

Brooks said there were a number of capital market transactions this year, resulting in spikes in the forex rate.

However, the funds to undertake the Alignvest deal were not raised through capital market mechanisms such as equity, bond or bank financing, he added.

Instead, “The bulk of those funds we already had on balance sheet. All we would have done is to sell instruments and liquidate to get cash, and those instruments would have been sold in the international markets because these are global bonds,” he said.

“So when JMMB is named, it is in a context where people think that we are coming to the market to borrow US$240 million – no, we are not. And no, we are not borrowing the equivalent of US$240 million,” Brooks said.

“I had said to the central bank that I have more than 75 per cent of the money in US government Treasury bills sitting down from August waiting, because when we went into this deal we had to evidence how we were going to pay for this transaction,” he added.