Amid swirling controversy over the relationship between Barita Finance Limited (BFL), Barita Investments Limited (BIL), and Cornerstone Financial Holding (CFHL), Jason Chambers, chief investment officer at Cornerstone United Holdings Jamaica Limited, has insisted that there is nothing covert in the management of the related entities.
“There is absolutely nothing underhanded happening. Cornerstone and Barita are made up of serious professionals with reputations that they have built up over several years. These are well-qualified professionals whose backgrounds and experience put them way above reproach or question,” Chambers said in a midweek interview with the Jamaica Observer.
“Cornerstone has set about recruiting great talents in governance and risk management. We’re not seeing any fallout for the APO,” Chambers said in reference to Barita’s JM$10-billion additional public offering which opened earlier this week.
In last week’s Caribbean Business Report Chambers had provided partial insight into BFL after a recent article in the Trinidad Express called into question whether the Jamaican regulators should suspend the APO until further clarity is brought on BFL.
The regulators for securities dealings would be the Financial Services Commission and, by extension, the Jamaica Stock Exchange (JSE) which regulates the stock market — on which BIL is a publicly listed company.
On Wednesday, Chambers explained that BFL is a special purpose investment vehicle used to facilitate specific investments for BIL.
“Barita Finance Limited is a special finance purpose vehicle whose shares are held in trust by an independent trustee, and as such there are no ultimate beneficiaries of the shares. The independent director is independent of Barita Investments and Cornerstone or any other entity in the group. It’s called an orphan trust because the shares are held in trust by an independent trustee, and as such there is no beneficial owner. These structures are used to provide off balance sheet exposure for clients,” Chambers said. Caribbean Business Report has learned that the trustee is a prominent independent trustee in Jamaica.
Through a fiscal agency agreement, BIL acts as the fiscal agent, investment manager, arranger, and investment broker for BFL.
BFL entered a debenture dated November 21, 2019 with BIL for a US dollar fixed-rate secured investment bond Series A, Tranche B, valued at $4 billion. This is one of the numerous debentures that has been registered with BFL through BIL. BFL was the number 4 owner in BIL up to June 30, 2020.
“It’s governed by contract and there are limitations. Any investment activity that Barita Investments conducts on behalf of Barita Finance must be laid out by the rules set out in the contract,” stated vice-president of asset management and research at Barita Investments Ramon Small-Ferguson.
“As Jason mentioned earlier, there are circumstances that can warrant Barita Investments to be fired. By those set of limitations it does limit Barita Investments’ ability to operate Barita Finance. Our discretion is limited to the extent of the contract. It’s not discretionary to the extent that we can do whatever we want,” Small-Ferguson said.
“Barita Finance typically offers investments with fixed rates of returns in the forms of notes and bonds. The appeal there is that investors tend to generate a higher risk adjusted return and offers greater flexibility,” he added.
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 that 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”.
Following the series of publications, Trinidad and Tobago Opposition leader and head of the United National Congress Kamla Persad-Bissessar called on Prime Minister Keith Rowley to answer questions relating to not only BIL, but First Citizens Bank Limited (FCB).
FCB is a State-owned bank and indirectly invested $2.82 billion through First Citizens Investment Services Limited in BIL’s 2020 APO.
Asked to respond to Persad-Bissessar’s comments, Chambers said: “I won’t comment or speculate regarding political matters. The investment in Barita by First Citizens would have been normal course business seeing that it owns an investment bank. I can only imagine that First Citizens would have relied on their technical expertise to do an analysis on the investment and recommend investing in Barita as a result of that technical analysis based on reports we’ve seen in the press by the CEO [Karen Darbasie] of First Citizens.”
Cornerstone Financial Holdings Limited has been injecting numerous amounts of capital into BIL since acquiring it in August 2018. Of the $23.8 billion raised by BIL over the last three years in permanent equity capital, Cornerstone has deployed $16.64 billion into the growing securities dealer. BIL is looking to raise between $10 billion and $15 billion in its second APO — which is scheduled to close on September 21. Assuming Cornerstone looks to maintain its stake relative to its committed subscription it might invest between $7.57 billion and $11.35 billion in the APO. Cornerstone will be receiving $2.44 billion in October when BIL pays out its latest dividend.
BIL’s stock price has remained well above $80 for the year with its price taking a four per cent dive on Wednesday to $85 before rebounding to $88.97 at the end of trading on Thursday. Its capital to risk weighted assets ratio was above 35 per cent at the end of June.
JN Fund Managers Limited and Victoria Mutual Fund Management Limited have recommended BIL’s APO as a buy with target prices of $125.29 and $95.21, respectively. This is relative to the APO price of $80. Both brokers are selling agents for the APO.
Chambers further stated, “Barita has a comprehensive funding and risk management strategy which is focused on ensuring that the various lanes of opportunity the company pursues are funded by appropriate sources. Further, the sustained period of low interest rates in Jamaica, together with the significantly reduced appetite by Government of Jamaica for debt financing, requires an evolution of the business models of the investment banking sector locally to build both capacity and capability to provide investors with value-added and differentiated investment opportunities that are directly linked to the development of the business sectors of the region and nation-building.”