What’s happening with Barita?
EVEN against the backdrop of numerous publications by the Trinidad Express in the run-up to its additional public offering (APO), Barita Investments Limited (BIL) was able to raise $10.78 billion, which was above its $10-billion target but lower than the $15 billion it had set for its maximum upsize amount.
However, there are still questions which were left unanswered and more which arose heading into its end of 2021 financial year (FY) on September 30.
BIL had done 2 rights issues and an APO when it decided to engage in its fourth major capital raise. Investors would have purchased at $15.50 (2019), $45 (2019), $48-$52 (2020), and at $80 for the most recent APO. Through these various equity issues, BIL has raised a cumulative amount of $33.61 billion in 3 years — which is quite a feat of its own merit. This has allowed it to expand its operations, including the start of its investment banking unit and alternative investments. The company’s profit base has also swelled from $363.24 million at the end of its 2018 FY to $2.76 billion at the end of the 2020 FY. Its nine-month earnings at the end of June already have surpassed 2020 and stand at $3.67 billion.
One of the ways in which BIL has generated such gains has been through Barita Finance Limited (BFL), which is an orphan trust with a well known independent trustee. BFL has contributed $696 million in direct fees for BIL’S new structured finance division. This has been attributed to the offering of notes/bonds to investors which was mentioned through a recent addendum to its APO prospectus.
Through its APO which closed on September 21, investors were able to rake in as much as 35 per cent in gains on BIL’S stock price as the stock had a wall of substantial buying interest at $108. However, there was a great deal of people selling the stock that day with volumes at 1.24 million units for the day, which was hours after the units were allocated to investors. But, the price has followed its classical yearly tradition where it declines after the end of Barita’s financial year with the price as of Monday at $100.49.
In 2020 BIL’S stock price rallied to a peak of $98 on September 30, with its lowest price for the day being $95. This would have netted investors anywhere from 98 to 104 per cent in less than two weeks after allocation, but the price fell to $70.46 just two days later. A similar observation was made in the 2019 FY when the stock closed at $86.46 with a peak of $90 but fell to $74.94 two days after. The buying interest which maintained a substantial bid on each September 30 vanishes once trading opens on the following October 1. As a result, investors can technically net a profit once BIL raises money and investors sell on September 30.
Barita Investments and its affiliates have attracted questions because of the nature of some transactions and the rationale for them, which they’ve attempted to justify. One such transaction was one done between 294 INC and BFL where BFL purchased BIL shares at $92 on October 14, 2020, a 77 per cent premium to which 294 was paid in the APO less than 3 weeks before.
The latest transaction of interest was where Barita Investments sold its 32,355,851 shares of Proven Investments Limited (USD) on September 28 at 12:37 pm at US$0.2310 for a consideration of US$7.47 million ($1.106 billion). However, those same shares were purchased again by an investor a mere 13 minutes later at US$0.2315. Preliminary settlement lists seen by the Jamaica Observer reveal that Barita’s share interest in Proven was unchanged from its September opening amount, despite the sale. The commission which would have been netted by Barita on each side (buy and sell) of the transaction if the entity purchasing had an account with them would have been about US$149,484.03 ($22.12 million) each. The transaction would have settled on September 30 under the T+2 settlement rule. Bank of Jamaica data show that Barita Investments bought more than US$14 million and sold more than US$9 million on September 16, then sold more than US$6 million with less than US$2 million purchased on September 17. Barita’s direct parent company Cornerstone Financial Holdings Limited (CFHL) has provided it with constant financial support through the injection of equity capital, but it purchases and sells shares on the open market from time to time. Although board members of Barita are senior executives and owners in CFHL, none of the purchases or disposals during the year was reported with any of the directors listed as connected parties or persons. The Jamaica Stock Exchange’s (JSE) Main Market Rule Book defines a connected person to a director/senior manager as that person’s husband or wife, children, dependents, spouses, partners and bodies corporate of which the persons connected together have “control”. The rules define control as, “control of a corporation is the holding of shares which carry 50 per cent or more of the voting rights in the corporation”. Due to this very limited scope of the rules, CFHL does not have to disclose any of its equity transactions in BIL’S stock. This became clear after an interview with CFHL executives in September during which they confirmed that CFHL did purchase 15 million shares on August 16 at $83.90 each but mentioned that it was an insignificant transaction relative to the 74.30 per cent (806,566,479 shares) stake they already owned.
Barita Investments did disclose a 10-million share purchase at $101.97 each made by its employee stock ownership plan, which is held in trust under a trust deed, but the APO shares were not allocated as yet on September 28. Thus, the purchase could have only been done by the sale of shares by either CFHL, First Citizens Investment Services Limited (FCIS), Rita Humpries–lewin or BFL based on June 30 top 10 shareholdings. Although employee stock ownership plans are not uncommon in the compensation packages, the price paid at that time was intriguing since a better discount could have been arranged based on where the stock was trading in the $90 range for most of September.
BIL’S blackout period for the staff and insiders begins on October 14, which is 30 days before the deadline for it to submit its fourth-quarter unaudited results to the JSE. The stock price may increase when the results are released but will shareholders get sufficient time and substantial responses when its annual general meeting (AGM) comes up next year? Ten minutes for a question-and-answer session with a substantial delay in responding to questions posed outside of AGMS shows that the company may benefit minority shareholders from a stock price perspective along with dividends, but not from the standpoint of fully understanding what is happening in the company.
Cornerstone would have injected possibly $8.16 billion to maintain its 75.68 per cent stake, but will be collecting $2.49 billion tomorrow in dividends. The total payout of $3.29 billion ($3.029 per share) is just below BIL’S nine-month net profit, but it is odd for a firm which is still growing to have such a high payout ratio.
This publication is not making any accusations, allegations or pronouncements on any organisation, but is only presenting the facts and posing questions which need some answers. Although Jamaica has financial regulators and laws, there is a definite need for amendments and improvements to catch up to the modern era.