WESTMOORINGS-BASED Guardian Holdings Ltd (GHL) last week floated a J$13.4 billion (about US$90 million) bond, some of the proceeds of which will be used to acquire the insurance and annuities business of an insurance company in Jamaica, which is a wholly owned subsidiary of the Trinidad and Tobago insurance company’s Jamaican parent, NCB Financial (NCBFG). NCBFG became the majority 62-per cent shareholder of GHL in May 2019, after a protracted takeover bid.
The acquisition is expected to increase GHL’s debt to equity ratio by 1,200 basis points (12 per cent).
In June, it was announced that GHL’s Jamaican company, Guardian Life Ltd (GLL) was acquiring the insurance portfolios of NCB Insurance Company (NCBIC) from NCBFG.
NCBIC will retain its pension fund administrator and investment management business, as well as sell insurance products as an exclusive agent of Guardian Life Limited.
In December 2019, the assets were valued at approximately US$410 million, a spokesperson for NCBFG asserted in a July 2 e-mail.
On July 6, GHL’s group chief executive officer, Ravi Tewari, said the company had commissioned independent valuations, which will form the basis for arms-length negotiations. The independent valuation was performed by EY and by Eckler Consultants.
Questioned on whether all of the J$13.4 billion (US$90 million) that GHL is raising will be used to pay for NCBIC, Tewari on Monday said: “Less than half of the funds raised will be used to pay for the acquisition. Most of the funds will be retained within GLL to support its regulatory capital position, post-acquisition.”
GLL is a 100 per cent subsidiary of Guardian Insurance Limited incorporated in T&T, which is in turn a wholly owned subsidiary of Guardian Holdings Limited.
GHL opened the J$13.4 billion unsecured, fixed rate corporate bonds in Jamaica last week Monday (September 21) and closed it on Friday (September 25).
Asked whether the bond issue was successful, Tewari said: “There is good appetite and the issue is fully underwritten.”
The bond is in five tranches, each of which pays the principal at the maturity of the tranche:
On Friday, the regional credit-rating agency, CariCRIS assigned CariAA- (Foreign and Local Currency Ratings) on its regional scale, and jmAAA (Local Currency Rating) on the Jamaica national scale, to the proposed debt issue of GHL of J$13.4 billion. The regional scale ratings indicate that the level of creditworthiness of this proposed debt obligation, adjudged in relation to other obligations in the Caribbean is high. The Jamaica national scale rating indicates that the level of creditworthiness of the proposed debt obligation compared to other debt obligations in Jamaica is the highest.
Tewari said the reason GHL, the parent of GLL, was raising the money and not GLL itself was because: “Under Jamaican insurance regulations, any debt raised by an insurer will be deducted in calculating the issuer’s solvency even if the debt ranks below policyholder liabilities. As a result, the debt was raised by GHL.”
He said the transaction was disclosed in Trinidad on July 2, 2020 by a material change report (MCR) filed with the T&T Securities and Exchange Commission and published in the press on July 6. It is intended that the MCR and ad regarding the closing would be sent on Thursday, October 1.
Explaining the five-tranche bond, the GHL Group CEO said: “Each tranche has a different term to maturity. It is not unusual for an issue to be broken down into tranches with different terms to maturity as different types of investors favour different terms to maturity. This also allows the debt to be paid down in a more structured manner.”
Asked whether it would have been more cost effective to raise the money in US dollars in T&T, Tewari said: “The cash flows of the acquired portfolio are denominated in Jamaican dollars. Out of prudence, we have matched the currency of the income with that of the debt.”
On the issue of the bond issuance on GHL’s debt to equity ratio, the GHL CEO said: “Our debt/equity ratio at the 2019 year end was 63 per cent. We estimate that the effect of the new debt would be to move our debt/equity ratio to around 75 per cent by the 2020 year end.”
Tewari said the acquisition of NCBIC would have a positive impact on GHL in the future.
“We are very excited by the transaction as it would provide a material boost to GHL’s position in the Jamaican market. It would provide an additional reliable stream of profitable new business and would give the wider Guardian Group significant capabilities in bancassurance distribution,” said Tewari.