GK raises $3b in debt to pay for two acquisitions

Food and financial services conglomerate GraceKennedy Limited raised $3 billion on the bond market this week to fund its two latest acquisitions.

The bonds were offered in two tranches, the first with a coupon rate of 5.5 per cent to mature in 2026, and the second priced at 6.25 per cent to mature in 2028.

GK Capital Management and Scotia Investments Jamaica acted as the brokers for the offer, which opened on April 23 and closed on Wednesday, April 28.

The conglomerate reached two agreements in March to acquire a water brand and an insurance firm, but has not disclosed the transaction values. The deals are yet to close.

“We have non-disclosure agreements with vendors and we cannot disclose the amounts,” Group CEO of GraceKennedy Don Wehby said regarding the acquisitions.

The net bond proceeds will be fully utilised for the acquisitions, in addition to cash.

Rating agency CariCRIS, which applied a high rating to the debt issue, said it was to be used to finance the March deals “and other acquisitions under consideration”. However, Wehby clarified that the proceeds would only be for the March transactions.

“We will be using all the $3 billion for the acquisitions,” he affirmed in response to Financial Gleaner queries.

GraceKennedy held cash of $24 billion up to December 2020 and could finance its acquisitions without debt, notwithstanding the cash reserve requirements for its regulated entities. But the group generally applies a 70 per cent debt-30 per cent equity mix to finance most of its acquisitions, Wehby explained.

“In a pandemic, it is always critical to have a very comfortable cash reserve, which we have,” he said.

Net of bond expenses, some $2.95 billion will be spent on the acquisitions, CariCRIS noted. It implies that the two deals together, assuming GK maintains its 70-30 financing mix, could be valued at around $4.2 billion, based on Financial Gleaner estimates.

On March 9, GraceKennedy announced the finalisation of an agreement with Scotia Insurance Caribbean Limited to acquire 100 per cent of the shares of Scotia Insurance Eastern Caribbean Limited, subject to regulatory approval, Wehby said. Then on March 10, the company announced the finalisation of an agreement with Bliss Limited and UniBev Limited to the 876 Spring Water brand.

Prior to those acquisitions, GraceKennedy had disclosed it had 12 M&A prospects in its pipeline.

But as for the timelines for the remaining acquisitions: “It is very difficult to say,” Wehby said on Tuesday. “However, we are at advanced due diligence with a few – both in food and financial,” he said, adding that the prospects are located in and outside Jamaica.

As to whether the group would continue to approach the Jamaican bond market for the rest of the purchases, Wehby offered no clear indication.

“We have not finalised the funding structure of other acquisitions and are therefore not in a position to disclose at this time,” he said.

Last week, CariCRIS assigned a ‘high’ credit rating to the $3b bond, and the GraceKennedy group a rating of CariA- on the regional scale and jmAA on the local scale, with a stable outlook.

“The ratings are driven by GraceKennedy’s strong market position supported by a well-established brand with a long history in the Jamaican food trading industry, as well as its robust corporate governance structure and risk management practices,” the rating agency said.

GraceKennedy, which will celebrate its 100th anniversary in 2022, generated annual revenue of $115.4 billion last year. The group comprises 46 subsidiaries, two joint ventures and six associated companies. It’s engaged in distribution, money services, banking, insurance, investment and food trading, and has a presence in 40 countries.

Its borrowings last year rose from $24 billion to $25.2 billion, a debt level that equates to 42 per cent of its capital.

steven.jackson@gleanerjm.com