LAST month, the majority public company First Citizens agreed to lend to a private Jamaican company, Cornerstone Financial Holdings Ltd (Cornerstone), the majority shareholder of publicly listed Barita Investments Ltd (BIL), up to 45 million additional dollars. The two-tranche loan would bring T&T Bank’s debt exposure to Cornerstone to US$85.1 million, and First Citizens Group’s debt and equity exposure to approximately US$125 million.
First Citizens’ US$85.1 million debt exposure to Cornerstone is disclosed in a security confirmation deed agreed to by the two companies.
The document reveals the following:
• First Citizens entered into an agreement, dated April 24, 2020, to loan Cornerstone US$25 million;
• First Citizens entered into an agreement to provide an additional US$15.1 million loan facility to Cornerstone on July 6, 2021;
• In February 2022, First Citizens “agreed to extend additional credit facilities to the borrower up to US$45 million”, to be disbursed in two tranches, the first of US$25 million and the second of 20 million US dollars.
Cornerstone is the beneficial and legal owner of 907,375,930 shares of Barita Investments Ltd, or 74.35% of the company. For the 2020 and 2021 loans, totaling US$40.1 million, Cornerstone has agreed to pledge 141,899,268 Barita Investments shares.
For the additional $45 million that First Citizens agreed to loan to Cornerstone in February 2022, the private Jamaican company agreed to pledge an additional 42,434,065 shares of Barita Investments, according to the security confirmation deed.
This means that Cornerstone has agreed to pledge a total of 184,333,333 shares of Barita Investments to provide collateral cover for the three credit facilities provided by First Citizens.
Cornerstone has also agreed to pledge enough shares of Barita Investments to maintain at least 150% collateral coverage for the US$85 million it has borrowed or agreed to borrow from First Citizens.
A 150% collateral coverage for the three loan agreements totaling US$85.1 million, requires Cornerstone to pledge shares of Barita Investments worth US$127.65 million.
On Friday, shares of Barita Investments closed trading on the Jamaica Stock Exchange at J$89.23 per share, making the 184,333,333 shares that Cornerstone has agreed to pledge worth J$16.44 billion. , or approximately US$107.50 million. The US$107.50 million value of the pledged shares, as of Friday, is lower than the US$127.65 million Cornerstone would be required to pledge to access the two tranches of the loan agreement of 2022.
The 184,333,333 shares of Barita Investments pledged by Cornerstone represent 20.31% of the company’s stake in Barita Investments.
First Citizens Investment Services, a wholly-owned subsidiary of holding company First Citizens, is listed as owning 90,795,154 Barita Investments shares, or 7.44% of the company, according to Barita’s first quarter report, for the period ended ending December 31, 2021.
Previous Sunday Express reports estimated that First Citizens, through its subsidiary FCIS, paid $40.6 million to acquire the 7.44% stake in Barita Investments.
Cornerstone borrowed the first two loans from First Citizens to partially fund its participation in the 2020 and 2021 additional public offering (APO) of shares by Barita Investments.
The local bank’s first loan to Cornerstone, for US$25 million and dated April 24, 2020, is due to mature in April 2023 and pays a floating interest rate of LIBOR plus a repricing margin, which was 7.79138%, in September. 30, 2020, according to Cornerstone’s unaudited 2020 financial statements.
At 3.04pm on Friday, the Sunday Express sent the Security Confirmation Deed document and nine questions to First Citizens general secretary Lindi Ballah-Tull. His response was: “Pursuant to legal, regulatory and/or statutory requirements of the Financial Institutions Act, Chapter 79:09 of the Revised Laws of the Republic of Trinidad and Tobago, we are bound by the duty of confidentiality and We are therefore unable to respond to any questions posed or issues raised in your email.”
The Security Confirmation Deed was prepared by prominent Jamaican law firm Myers, Fletcher & Gordon and filed with the Companies Registry in Barbados, where Cornerstone is currently domiciled. The document was signed by Cornerstone administrators Paul Simpson and Arnold Aitken. Signing on for First Citizens was Ballah-Tull and Deputy CEO Jason Julien’s business generation.
The document is dated February 8, 2022.
About two weeks after the security confirmation deed was signed, Julien and First Citizens CEO Karen Darbasie flew to Kingston for meetings with senior officials from the current administration in Jamaica.
Accompanied by Cornerstone Chairman, Mark Myers, and its founder, Paul Simpson, Darbasie met with Jamaican Prime Minister, Andrew Holness, on February 23, 2022. Darbasie and Julien met with Jamaican Minister of Investment, Industry and Commerce, Aubyn Hill, on the same day, and with the Island’s Finance Minister, Nigel Clarke, on February 24. These talks were considered exploratory by Jamaican sources.
on foreign loans
On Thursday and Friday, the Sunday Express asked the Central Bank a number of questions regarding local banks lending in US dollars:
Q: Does the Central Bank impose restrictions on the ability of its regulated institutions to lend in USD?
A: The Central Bank currently has no specific restrictions on foreign currency lending as such. Our credit guidelines encompass domestic and foreign currency lending and encompass factors related to credit risk management, capital adequacy, liquidity and concentration.
Q: Does the Central Bank have any prudential guidelines governing US dollar lending, for example: collateral coverage; redemption currency; interest rate applied; charges imposed, etc.?
A: As stated above, current credit risk management guidelines are general and can be found on the Central Bank’s website. The 10% capital requirement on net foreign currency positions of financial institutions is a specific measure for foreign currencies. The charge on the net international position is designed to deal with the institutions’ (bilateral) foreign exchange risk. This risk increases all the more as the imbalance between institutions’ external liabilities and their external assets is significant.
Operationally, financial institutions are therefore required to add to their capital the equivalent of 10% of the absolute difference between their external liabilities and their external assets. More generally, credit risk assessment of financial institutions is a key priority for the Central Bank. As such, the Bank closely examines institutions’ ability to manage all aspects of their loan portfolios.
Q: Does the Central Bank prevent local regulated institutions from making USD loans to non-T&T entities?
A: Lending regulations cover, but are not specific to foreign currency lending to entities other than Trinidad and Tobago. These regulations include credit exposure limits (for a single entity) of: 25 percent of the financial institution’s capital base; and ten percent to a related party.
The first mention of the words Barita Investments in a T&T newspaper was in the April 28, 2021 edition of Express Business magazine. This initial story reported on FCIS’s participation in Barita’s APO in September 2020.
First Citizens responded by sending the Trinidad Express a pre-action protocol letter, dated May 3, 2021.