Cornerstone reorganisation next headed to court for mandate

The corporate restructuring of investment company Cornerstone to satisfy Bank of Jamaica, BOJ, terms for the regulation of subsidiary Cornerstone Trust and Merchant Bank and holding company Cornerstone United Holdings Jamaica Limited, CUHJL, will see the entity applying to the Jamaican courts for approval of a scheme of arrangements for the reorganisation, and for a court order directing its implementation, business sources have told the Financial Gleaner.

Cornerstone’s management has declined to comment on the issue and would not respond to information reaching the Financial Gleaner that minority shareholder Sagicor Investments Jamaica Limited, SIJL, is contending that its recent ‘no’ vote on the holding company changes was based on a lack of details about the proposed reorganisation.

Cornerstone says it does not intend to get into a public debate on the matter, but has confirmed that the entity sought and received majority shareholder approval for the restructuring.

Sources close to the issue say that at a recent emergency general meeting of Cornerstone shareholders, a resolution was put to the vote requesting authority for the board and management of CUHJL and Cornerstone Financial Holdings Limited, CFHL, to “take the requisite steps towards preparation and submission of the financial holding company application to the BOJ as required by the Banking Services Act, BSA, and for the reorganisation to facilitate compliance with the BSA”.

Cornerstone Financial is registered in Barbados.

The sources say the plan was explained in some detail to the shareholders, including the SIJL representative, who attended the meeting. Sagicor Investments, which owns 2.8 per cent of Cornerstone, was said to be the only shareholder that voted against the resolution.

It’s normal for a company going through restructuring to have their new ‘scheme of arrangement’ approved by the Supreme Court. As such, legal sources say such a move by Cornerstone should not be read as an attempt to navigate the Sagicor objection to the reorganisation.

Sagicor Investments is also said to be challenging a “mirror” arrangement said to have been agreed in 2018 by shareholders of CUHJL and CFHL, and under which shareholding in one entity equates to the same ownership stake in the other.

SIJL lawsuit

In December, SIJL went to court in Barbados asking for injunctions against the distribution of CFHL shares arising from 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 it did not participate. It is also seeking a court order compelling CFHL to buy out Sagicor Investments’ shares in the Cornerstone holding company.

It is understood that once the court approves the plan and issues directions to Cornerstone, the new scheme will be brought to the company’s shareholders and bondholders for their approval of the legal steps for the reorganisation.

Apart from being minority shareholders, SIJL and its affiliate Sagicor Life Jamaica Limited hold the majority of Cornerstone bonds through several unit trust funds managed by the Sagicor entities. The bonds were part of a $5-billion float by Cornerstone in December 2018 as it sought to refinance an earlier float that year to fund its acquisition of a 75 per cent stake in listed stock brokerage and investment firm Barita Investments for just over $3 billion.

Financial sources indicate that the Sagicor-managed funds built up the bondholdings in Cornerstone to $2.9 billion through secondary market trades, over time, rising from a minority position at the time of the bond refinancing,

The bond raise and Barita acquisition were undertaken by Cornerstone Investment Holdings Limited, at the time a St Lucia-registered international business company, which later underwent a change of registration – described by Cornerstone as a “continuation” – moving from St Lucia to Barbados in February 2020. It was then renamed Cornerstone Financial Holdings.

Details of the financial performance of the privately held CUHJL and CFHL are not known, but Barita, directly owned by CFHL, recently declared year-end profits to September 2021 of $4 billion, up from $2.8 billion for 2020, continuing a record-breaking profit run for the company consistently above $1 billion in its post-acquisition period.

Barita’s assets stood at $90 billion and Cornerstone Trust and Merchant Bank’s at $7.1 billion as of September 2021.

huntley.medley@gleanerjm.com