Updated | Alliance Financial floats $2 billion IPO for expansion
Published:Wednesday | December 30, 2020 | 5:06 PM
Correction and Clarification
IN THE story titled ‘Alliance Financial Floats $2 billion IPO for Expansion’ published on December 23, 2020, it was incorrectly reported that the issue would double the capital base of the company and that the funds would finance existing services and the rolling out of new ones. Alliance’s balance sheet will remain the same size and the company will not be receiving any of the proceeds from the IPO, which is structured as a ‘cash out’ transaction by the selling shareholders. We regret the error.
Alliance Finance Services Limited wants to raise $2 billion in its initial public offer, IPO, which opens next week, in a move which would double the capital base of the company, provided the offer receives full subscription. The funds are slated for operations, including expanding existing services and rolling out new ones. The company has it eyes set particularly on buying less capitalised competitors with established networks who may be squeezed out of the cambio market by the economic downturn brought on by the COVID-19 pandemic.
Alliance Financial, which acts as a primary agent for remittance provider MoneyGram, operates a cambio and provides payment services as a principal member of the Mastercard network. The company was founded 24 years ago by Robert and Peter Chin.
The IPO, which would see the company being listed and traded on the main market of the Jamaica Stock Exchange, would reduce the holdings of the Chins, who will sell down their stake from 88 per cent to roughly 70 per cent. There is, however, a caveat to the share offer. The IPO would need to be largely subscribed or the owners will not take the company public.
“The selling shareholders expect to receive the amount of $1.99 billion pursuant to this invitation. If, however, the invitation does not raise a minimum of $1.5 billion within forty days after the publication of this prospectus, the application for listing will not be made and all payments for the shares received from applicants will be returned,” the prospectus for the share offer states.
The IPO opens on December 28 and closes on January 11, with JMMB Securities as lead broker.
The offer will sell 1.2 billion units at $1.59 per share, with 500 million allotted to the general public, 344 million reserved for Alliance Financial’s key partners, 375.7 million set aside for the lead broker and 31.3 million in reserved shares for Alliance’s Financial’s employees.
“This share allocation will ensure that individual and smaller shareholders have an opportunity to own a stake in the company that they helped to build. This will safeguard the diversity in the ownership of the business going forward,” Robert Chin said in a in statement.
Currently, there are 6.2 billion shares held mostly by the Chins directly and through their companies. Melwood Holding, directed and controlled by Peter Chin, owns 2.8 billion units or just under 50 per cent, while Robert Chin, who controls and directs Willo Capital, owns another 2.8 billion units through that company. The Chins own another 900 share units directly, split evenly between them.
At close of the share invitation, assuming full allocation, the total issued shares would remain at 6.26 billion units with the selling shareholders decreasing their holdings to 2.19 billion for Melwood Holding or 34.9 per cent and 2.19 billion for Willo Capital at 34.9 per cent.
Alliance Financial has outlined growth strategies, including the company expanding digital solutions for its Mastercard services, while also expanding its remittance subagent network for MoneyGram. On the cambio side, the company is looking to buy other cambio businesses to expand its footprint, touting the exploration of possible acquisition strategies in the retail cambio space.
“As the softening of the cambio market persists into 2021, the company believes that there may be opportunities available to strengthen and expand its presence in the retail/branch market in preparation for the rebound of the cambio market when tourism activities return to normalcy,” the prospectus outlines the cambio-specific expansion plans after the IPO.
Alliance Financial’s full year results ending September 2020 show improvement over five years despite a slight dip in the growth of revenues and profit in 2020, due in part to the impact of the pandemic on the economy. Specifically, revenues totalled $1.46 billion in 2020 down from $1.67 billion a year earlier, but up from $1.2 billion in 2016. Profit after tax fell to $709.3 million from $782.7 million in 2019 and $291.9 million in 2016.
Assets grew to $4.4 billion from $3 billion in 2019 and roughly $2 billion in 2016. Shareholder’s equity increased to $1.6 billion in 2020 from $1.5 billion in 2019 and just under $430 million in 2016.
“The reduction in overall revenue was directly related to the impact of the COVID-19 pandemic which adversely affected the company’s business for the second half of the 2020 financial year, due to the significant downturn in tourism,” according to the prospectus.
“This resulted in a decline in the company’s cambio operations in financial year 2020 compared to 2019,” added the prospectus.
Mirroring the national trend, despite the falloff in cambio activities, the company recorded increased activity in its remittance operations.
“The company’s remittance business continues to surpass expectations despite the effects of the COVID-19 pandemic. This validates the company’s diversified business model and demonstrates the resilience of both segments of the company’s business,” explained management.
In April, Alliance Financial launched its remittance ‘direct to card’ Mastercard product, which remotely puts remittance cash on cards.
Remittance inflows to Jamaica increased by double digits in the period April to September 2020 based on Bank of Jamaica’s Remittance Bulletin-September 2020.