Cornerstone reorganisation on track amid Sagicor objection

Investment company Cornerstone must change its holding company arrangements to conform with the law governing the regulation of its licensed deposit-taking subsidiary Cornerstone Merchant Bank, CMB, by the Bank of Jamaica.

Jamaica-registered holding company Cornerstone United Holding Company Limited, CUHJL, is also regulated by the BOJ.

Publicly listed subsidiary Barita Investments Limited, directly owned through Barbados-based Cornerstone Financial Holdings Limited, CFHL, has for some months now been telescoping the pending change via market disclosures, but the move is said to have met resistance from one minority shareholder, Sagicor Investments Jamaica Limited, SIJL.

Sagicor Investments has a 2.77 per cent stake in CFHL and is said to simultaneously hold equivalent shareholding in CUHJL as a result of what is being referred to as a “mirror” relationship between the two holding companies that share the same boards and shareholdings. At the same time, Sagicor Investments is the majority bondholder for Cornerstone debt instruments that were floated at the time the investment holding company went to the capital market to raise money to acquire a majority stake in Barita in 2018. The reorganisation plans are said to require the approval of the bondholders.

“The operations of Barita and Barita United Trusts Management Company Limited are expected to continue as before,” Barita said of the proposed holding company’s changes in the market filing of its audited financials for year ending September 2021.

Cornerstone has also assured the central bank that the planned changes, which must get BOJ approval, are not endangered by the running legal dispute between Sagicor Investments and Cornerstone.

Sagicor Investments went to court in Barbados last month seeking injunctions against the distribution of CFHL shares, consequent on the latest round of internal fundraising among shareholders, as well as compensation in the amount of US$4 million for damages it said arose from rights issue transactions in which Sagicor did not participate. It is also asking the court for an order compelling CFHL to buy out Sagicor’s approximately 2.8 per cent stake in the Cornerstone holding company.

“It is not anticipated that the sale of shares by SIJL will have any adverse effect on the operations of or market sentiment regarding either Cornerstone entity or their regulated subsidiaries. Furthermore, it is not intended or expected that this development will delay or derail the efforts being expended by the Cornerstone boards in relation to organising the Cornerstone entities’ affairs under a financial holding company structure,” Cornerstone chairman Mark Myers assured the central bank in a December 17 letter to BOJ Governor Richard Byles.

Myers noted, however, that: “The trust deed in relation to the bonds contains certain covenants, the effect of which means that CUHJL will require the approval of the bondholders with respect to any reorganisation to be undertaken pursuant to sections 69 and 70 of the BSA. Of note, SIJL has not indicated any interest or desire to dispose of the bonds.”

The precise dollar value of the bonds being held by Sagicor Investments was not ascertained. The investment company told the Financial Gleaner that financial arrangements with its clients are confidential. Sagicor sources say, however, that as bondholders, no restructuring proposal or request for approval has been received from Cornerstone. The sources also confirmed that Sagicor Investments, as shareholders, voted against the restructuring at a recent Cornerstone meeting of shareholders and said Sagicor did not endorse the proposal as, in the view of its management, no details of the proposed reorganisation were presented at the time.

In the lead-up to Cornerstone’s successful acquisition of a 75 per cent shareholding in Barita for just over $3 billion in 2018, Sagicor Investments was the arranger for an initial $2-billion bond raise by Cornerstone Investments Holding Limited, a St Lucia-registered company. Cornerstone is said to have refinanced the bonds through a $3- billion capital raise and another $3 billion in equity injection by its shareholders. The life of the bonds, which initially had a tenure of seven years, were shortened to five years and are expected to mature next year.

The payout of the bonds will not pose any challenges, sources close to Cornerstone have told the Financial Gleaner, citing the private company’s liquidity.

While the corporate restructuring proposals are not yet before the BOJ, it is possible that it will involve the formal merger of the two holdings companies into a single operation under CUHJL to fulfil the requirement of the Banking Services Act for banking institutions to be held as a separate entity under the group structure of a financial holding company, together with all other regulated entities under the same ownership.

This has already been telescoped to the BOJ by Cornerstone, which noted that the “mirror” arrangement with the same shareholding structure involving CUHJL and CFHL was designed and implemented with the intention of an eventual merger of the two as part of the BOJ’s financial holding company requirements. The “mirror” relationship is said to be governed by a June 2018 share confirmation agreement signed by the Cornerstone shareholders.

Cornerstone’s July 2018 takeover bid circular to Barita shareholders had identified CUHJL as the designated parent company.

huntley.medley@gleanerjm.com