GOJ selling 40% of mortgage bank prior to IPO

The planned divestment of Jamaica Mortgage Bank, JMB, via the stock market contemplates a carve out of a large chunk of the bank for sale to a key investor prior to the public offer of shares.

But the deal to be struck won’t be consummated until the initial public offering is made on the Jamaica Stock Exchange. The listing is to be done via a vehicle to be called JMB Developments Limited.

The Development Bank of Jamaica, which is overseeing the privatisation of the state-operated mortgage bank, is looking for an entity to acquire 40 per cent of JMB, but said that banks, insurance companies and securities dealers need not apply.

However, microlenders are qualified to bid.

“Interested parties should not already be holding a licence from the Bank of Jamaica or Financial Services Commission, or should not be a shareholder who has equal to or greater than 10 per cent stake in a licensee or in a group with a licensee,” DBJ said in a tender notice.

“Notwithstanding the foregoing, a potential investor that holds a licence solely pursuant to the Microcredit Act will be eligible for consideration,” it said.

The qualifying statement is necessitated by the fact that the BOJ is the licensing body for microlenders, having fairly recently assumed the role as their regulatory supervisor under legislation passed in 2021.

DBJ is overseeing the privatisation of the mortgage bank, a state-operated body that’s in the business of lending to real estate developers and operating a secondary mortgage market. JMB provides loan funds for on-lending to public and private sector housing developers, and mortgage insurance services on behalf of the Government of Jamaica.

Interested parties have until April 30 to submit bids.

“The strategic investor should be interested in owning a strategic stake in a financial institution focused on real estate development funding,” stated the DBJ request for expressions of interest.

Jamaica Mortgage Bank, which has been in operation for half-a-century, is worth about $2.8 billion in net book value, based on estimates within the Jamaica Public Bodies report that’s produced by the Ministry of Finance. The stake to be acquired by the investor would therefore be worth around $1 billion on the mortgage bank’s books.

In line with practice for government-owned entities that are being divested, JMB was removed from this year’s budgetary forecast in the public bodies report for year ending March 2025. And no comments were forthcoming from JMB and the DBJ on the valuation.

“This is premature. The forecasted information will be included in the prospectus as required,” said David Wan, the acting managing director of the Development Bank of Jamaica in response to Financial Gleaner queries.

The stake to be acquired by the strategic investor will be sold at the same price as the shares to be offered through the IPO.

“Yes, the pricing of the shares will be the same for all applicants. The strategic investor will be in a reserved position to acquire 40 per cent of JMB Developments Limited prior to the offer for sale on the JSE,” said Wan.

“The GOJ will not be selling the 40 per cent shares to the strategic investor until the offer for sale is launched,” he affirmed.

Jamaica Mortgage Bank pulled in 560 million in annual revenue at year ending March 2024. Revenue was flat for the year but its earnings declined from $173 million to $100 million.

There was also a dramatic decline in the value of its loan portfolio, which fell from $6.2 billion to $2.5 billion.

JMB’s non-performing loans are “currently at 3.8 per cent,” said Wan.

The mortgage bank’s remit for the 2024 fiscal year included growing its loan book by mobilising resources to fund some 100 housing developments. It also aimed to reduce its bad debt from the 3.8 per cent of its loan book.

The JMB was set up in 1971 as a private limited company. Two years later, it was converted to a statutory corporation by an act of Parliament.

steven.jackson@gleanerjm.com