GK takes control of Key - Weighs migration from junior to main market
Published:Sunday | March 8, 2020 | 12:00 AMKarena Bennett - Business Reporter
GraceKennedy expects to take control of Key Insurance this week after closing a cash offer for the general insurer on March 2.
The level of subscriptions was not disclosed, but it’s clear the conglomerate achieved sufficient take-up of its $2.01 per share offer to gain majority control.
GraceKennedy’s plan is to grow its stake from 15 per cent to 80 per cent, which means it will be able maintain Key as a listed company.
But in a new revelation, GK says management discussions are now centred around the migration of the company from the junior market to the main market of the Jamaica Stock Exchange, JSE.
“One of the things that we have been discussing internally is Key’s listing on the junior stock exchange. We think that based on the strategic plans, and I will outline them in another release to the media and the JSE, we want to list it on the main stock exchange.
“I know my legal team is looking at the possibility,” Group CEO Don Wehby said during the company’s investor briefing last Wednesday.
As a regulated company, Key is subject to a corporate tax rate of 33.33 per cent. However, its listing on the junior market of the JSE in 2016 gave the company access to five years of full waivers on its income taxes, and another five years at 50 per cent.
Had Key delisted from the stock exchange, it would have been liable for the taxes waived in the years it was listed. But as a migrant to another side of the market, it appears it may not face that liability, based on a reading of the JSE rules.
However, GK itself is seeking guidance on the tax implications.
“We are having discussions with our corporate lawyer Trevor Patterson, and our auditors PwC on the tax treatment. But bear in mind that the company has tax losses,” Wehby told the Financial Gleaner.
While GraceKennedy Limited, a food and financial services conglomerate, has traded on the JSE since 1986, none of the companies it owns in Jamaica or overseas are currently listed. Key will be the exception.
“We have a vision and strategic plan why we would like Key to be a listed company,” said Wehby, when asked why.
“I am sure you will understand that these plans are market sensitive, so I cannot comment any further at this time,” he said on Friday.
GraceKennedy is acquiring Key at a low point for the general insurance company, which in 2018 breached the regulatory solvency ratio, the minimum capital test, or MCT, and needed an injection of capital.
Since its listing, Key Insurance produced a profit in 2017 only – totalling $42.6 million – largely attributable to a growth in premiums, investment income, sale of investment securities and gains on the revaluation of investment properties.
In 2016, Key reported losses of $42.2 million; recovered in 2017; then fell deeper into red with losses of $167.49 million in 2018; and for the nine months ending September 2019, lost another $72.93 million.
Its full-year 2019 results are pending.
So far, Key Insurance has only benefited from four years of tax waivers, but if GraceKennedy opts to delist the company before year 15 of the original listing date, which was March 2016, it would have to repay any tax benefits Key Insurance enjoyed up to that point.
GraceKennedy is already invested in several segments of the insurance market through companies such as Allied Insurance Brokers, GK General Insurance and the most recent addition, Canopy Insurance, a start-up life and health insurer formed in partnership with the Musson Group.
GK reaffirmed its plan to retain the Key Insurance identity, and Wehby was upbeat about improving its ratios.
“We have been in the underwriting business for many years through GKI which has been very successful for us. Key, as you know, has not been doing well, but we believe that with the plans we have, we have the ability and the management to turn around this company,” he said.
“We are going to be very focused. We will put the necessary resources behind it including the capital to ensure that we have a success story,” Wehby said at the investor briefing.
If Key Insurance Company Limited does migrate to the JSE Main Market, it would become the second junior stock to do so, after Eppley Limited, which made the shift five years after its original listing.