Cornerstone Financial Holdings Limited (CFHL) yesterday broke its silence on a raft of questions posed by financial executives and the Trinidad Express about the relationship between Barita Finance Limited (BFL) and several entities including its most prominently owned subsidiary, Barita Investments Limited (BIL).
The Trinidad Express has been asking several questions over the last year about BIL following the five per cent acquisition by First Citizens Investments Services Limited (FCI) in September 2020. FCI is a subsidiary of State-owned First Citizens Bank Limited in Trinidad and Tobago.
On August 31, the Trinidad Express questioned BFL, a St Lucian international business company, and its relationship with BIL, where it owned 14.9 million BIL shares up to the end of June 2021.
According to the Express, an investigation it conducted “uncovered the fact Barita Finance Ltd was incorporated in St Lucia under that island’s International Business Companies Act as an offshore company on November 29, 2018 by a registered agent named Hewanorra Corporate Services Ltd with the incorporation number 2018-00544”.
The Express added that its investigation “also uncovered the fact that a company named 294 Inc was also incorporated in St Lucia under that island’s International Business Companies Act as an offshore company on November 29, 2018, by a registered agent named Hewanorra Corporate Services Ltd with the incorporation number 2018-00540”.
BFL entered into a debenture dated November 21, 2019 with BIL for a USD fixed rate secured investment bond Series A, Tranche B, valued at $4 billion. BFL first gained its ownership in BIL on October 14, 2020, when it purchased 8.48 million shares from 294 Inc in a transaction valued at $780.14 million. 294 Inc purchased 11 million shares in Barita’s 2020 additional public offering (APO) and listed Paul Simpson as a connected person in BIL’s 2020 annual report.
Simpson is the founder, president and CEO of CFHL.
With all these questions swirlling around about BIL ahead of its second multi-billion-dollar APO, Cornerstone Financial Holdings Limited has decided to clear the air about all these major questions along with the concerns surrounding BIL’s explosive growth over the last three years. BIL raised $13.5 billion in its first APO and will be seeking between $10 – 15 billion in its latest market offering which opens on Monday.
“Barita Finance Limited is a special purpose vehicle whose shareholdings and directorship are totally independent of and external to Barita Investments Limited, the Cornerstone entities, and any of its directors,” wrote chief investment officer of Cornerstone United Holdings Jamaica Limited (CUHJ) Jason Chambers, in an e-mail to the Jamaica Observer.
“Barita Investments Limited is the investment manager of Barita Finance Limited and acts as fiscal agent as it relates to debt issuances by Barita Finance. This represents the narrow and sole nature of the relationship between Barita Finance, Barita Investments, the Cornerstone Group, and any of its management, shareholders, directors and their connected parties, including the companies they own,” he added.
“Functionally, Barita Finance is a vehicle used to provide investors of Barita Investments with exposure to various marketable securities which form part of the suite of off-book investment structured products offered to the market,” Chambers added.
When asked about the lack of details surrounding the relationship with BFL and lack of disclosure on the recent share purchase by CFHL on August 16, Chambers told the Caribbean Business Report, “The shareholders and directors of Barita Investments and Cornerstone are separate and independent from shareholders and directors of Barita Finance, thereby making Barita Finance unrelated to Barita Investments and its affiliates.
“Cornerstone is the largest shareholder in Barita and therefore has a vested interest in Barita shares. It is therefore not unusual for Cornerstone or any other parent company to acquire shares in its listed subsidiary from time to time in the normal course of business. The purchase by Cornerstone represents just over one per cent of Cornerstone’s total holdings and is consistent with Cornerstone’s long-term strategic position in the stock.”
Cornerstone Financial Holdings Limited owned 74.30 per cent of Barita Investments Limited up to the end of June with the recent share purchase increasing its stake to 75.68 per cent. Barita Investments Limited has grown its operations significantly since CFHL’s acquisition of the company in August 2018. BIL produced $1.30 billion in net operating income and earned $363.24 million in net profit for its 2018 financial year (FY) ending September 30, 2018.
Following two rights issues and an APO, Barita Investments Limited’s net operating income grew to $5.21 billion with net profit eclipsing $2.75 billion for the 2020 FY. The bulk of its earnings came from fees and commission income which totalled $1.83 billion. Total assets was $70.69 billion for the period.
As a fairly nascent brokerage firm and cambio dealer, BIL’s meteoric rise in earnings relative to its asset base raised many eyebrows. This was also along the lines of queries about its plans to grow its business in its latest APO which BIL plans to deploy in diversified principal investments, footprint expansion and its investment banking unit.
“The growth in fees and commissions income over the last three financial years has been the result of a combination of the addition of new business lines coupled with material growth in existing business lines,” Chamber said.
“Specifically, in December 2018, Barita Investments Limited launched its investment banking unit by completing its first transaction. The growth in the asset management business, and, by extension, revenues has also been driven by the addition of new products such as customised portfolio management services and the launch of our structured finance unit. These solutions have allowed clients to access investment products tailored for their particular risk and return needs,” he added.
“Finally, revenues from asset management fees have benefited from the growth in performance-related fees linked to the general rise in market values of undervalued assets acquired during the pandemic,” said Chambers who also heads BIL’s unit trust management subsidiary.
Cornerstone Financial Holdings Limited has invested more than $16 billion (US$117 million) in BIL’s capital raises with the parent company usually taking up the bulk of each offer.
CFHL was founded in November 2017 by Simpson and has garnered investors such as Mark Myers, Duncan Stewart, Nigel Chen-See, Hugh Coore and Phillip Lee. Through these commercial and investment banking partners, the company has raised more than US$160 million since its inception.
Through Cornerstone United Holdings Jamaica Limited, CFHL acquired 100 per cent of MF& G Trust and Finance, which has since been renamed Cornerstone Trust and Merchant Bank Limited.