Barita aims to raise $10b in second COVID-era APO

Brokerage firm Barita Investments Limited is again tapping the equities market to raise $10 billion, which it has earmarked essentially for working capital.

Barita says the cash is needed to top up its investment portfolio, which includes taking equity stakes in private companies, providing private credit and taking positions in infrastructure and alternative investments. Some of the money will also go towards financing the business’ local and regional expansion, and further expanding its investment banking underwriting capacity after settling transaction costs of $200 million.

Noting that the company is experiencing what it describes as accelerated client and balance sheet growth, the Barita APO prospectus says the aim is to continue this growth trend, with its operating capacity and capabilities being boosted by an allocation of $4.1 billion of the proceeds towards expanding its local and regional footprint, $4 billion to its principal investment portfolios, and $1.6 billion to further expand its investment banking underwriting capacity and expansion into the region.

A notable feature of the APO, in which another 125 million ordinary shares are being created and sold at $80 per share, is the reserving of a large block comprising 112.5 million shares for special investor groups, including the company’s majority owners Cornerstone Financial Holdings Limited and other institutional investors who, together, are being allotted the lion’s share of 93.75 million shares.

Cornerstone Financial Holdings is described in Cornerstone’s publicity materials as being the St Lucia-registered “counterpart” of the Jamaican company, Cornerstone United Holdings Jamaica Limited, known to be Barita’s ultimate parent company.

Another reservation of 18.75 million shares has been carved out for existing shareholders and Barita clients, with the remaining 12.5 million being made available to the general investing public.

The prospectus notes that Cornerstone Financial, which is defined as “the committed subscriber”, will purchase up to 75 per cent of the amount being raised in the APO without causing its total shareholdings in the company to exceed 80 per cent.

The prospectus for the APO was registered on August 26 and published on August 30. The offer opens on September 6 and is scheduled to close on September 20. The offer may be upsized by an additional 62.5 million shares to 187.5 million. Minimum subscription is 300 shares in multiples of 100.

The offer adds to the existing issued ordinary shares of just over one billion units in the company that was founded in 1977 by retired stockbroker Rita Humphries-Lewin, who remains a minority shareholder, having sold her majority stake to Cornerstone some three years ago. Barita is among the oldest stockbrokers in Jamaica and is the largest listed securities dealer by market capitalisation.

At its trading price of $92 on Monday, Barita’s market value was $99.87 billion. The APO, if it produces the targeted $10 billion, will push up Barita’s paid-up capital from $24 billion to $34 billion.

Barita is the arranger, main broker and a selling agent for its own APO, while JN Fund Managers Limited is co-broker and a selling agent. Other selling agents are Victoria Mutual Wealth Management, Scotia Investments, Jamaica Money Market Brokers, and CUMax Wealth Management.

In the third quarter of last year, Barita had tapped the equities market for $13.5 billion in an APO in which some 260.5 million ordinary shares were offered at between $49 and $52 per share. That had followed a rights issue in the latter part of 2019 of 77.89 million shares each at a price of $45, that was upsized to 116.8 million units, and another issue executed in the early part of 2019 for the allotment of 262.2 million shares priced at $15.50.

At the date of the prospectus, Barita’s top five shareholders are stated as Cornerstone Financial Holdings Limited with 74.3 per cent holding, First Citizens Investment Services Limited of Trinidad with 6.11 per cent, Humphries-Lewin with 4.93 per cent, Barita Finance Limited with 1.37 per cent, and the Government of Jamaica’s National Insurance Fund, NIF, which held 0.75 per cent.

Reserve shares

Barita said in its prospectus that given a full take up of the upsized offer, based on the stated shareholding, it is expected that the post-APO shareholdings will be diluted: Cornerstone’s stake is expected to fall to 63.35 per cent, First Citizens to 5.21 per cent; Humphries-Lewin, 4.21 per cent; Barita Finance, 1.17 per cent; and NIF to 0.64 per cent.

Explaining the rationale for reserving such a large block of shares for Cornerstone and key investors in the current offer, Barita’s Group Chief Investment Officer Jason Chambers said Cornerstone holds 75 per cent of the issued ordinary shares of Barita Investments and the 93.75 million of reserved for both groups represented 75 per cent of the total share offer in the APO.

As for Barita Finance, Chambers said it was a special purpose vehicle for which Barita Investments is the investment manager, and whose shareholdings and directorships are totally independent of and external to Barita, the Cornerstone entities and any of its directors.

Barita has been reporting big business volumes and profit, with $290 billion in funds under management up to March of this year. For the first six months of this year, the brokerage reported $2 billion in net profit, a 104 per cent increase over the corresponding period in 2020 on the back of $4 billion in net operating revenue, which itself represented a more than 78 per cent improvement over the same period last year. Its annual profit for the period ending September 2020 was $2.7 billion, a billion more than the $1.7 billion it posted for 2019.

Barita reported total assets of $78.7 billion in March; shareholder equity of $28.7 billion, which almost doubled year-over-year; and return of equity of 17.5 per cent.

huntley.medley@gleanerjm.com