By Dennise Williams, Staff ReporterINVESTMENT BANKERS Dehring Bunting & Golding (DB&G) could be set to purchase the debt owed by Michael Lee-Chin's AIC (Barbados) Limited to the Government to complete the purchase of National Commercial Bank (NCB).
AIC (Barbados) Limited acquired controlling interest in NCB in March 2002 for $6 billion. The deal saw a deposit of $2.65 billion with the remaining balance of $3.35 billion to be paid off in eight annual instalments.
"All we can say at this point is that the Government of Jamaica (GoJ) has favourably considered a proposal that we put to them for the securitization and ultimate sale of a large block of their marketable receivables," a source from DB&G's head office stated. "We are unable to confirm that is AIC/NCB debt. If this sale is successfully concluded, it would greatly assist the GoJ in its attempt to contain the fiscal deficit within the most recently targeted levels... and yes, earn us a little something as well!"
OPTIONS
And as there has been no definitive announcement as to the Government's plans regarding their NCB financing arrangement, on Friday, March 26, the Financial Gleaner threw out some options in terms of clearing off the NCB debt owed by AIC.
"AIC (Barbados) is the company that bought a controlling interest in NCB for cash plus a note (debt instrument)," said Keith Collister, business development manager at First Global Stockbrokers. "The most likely scenario is that the Government auctions the debt instrument, as it needs money probably with first refusal to AIC. Although in that scenario someone else could buy it."
NCB can be of assistance in paying off the AIC debt through a huge dividend to its parent, although it is unlikely to be able to issue a high enough dividend to pay off the full amount, Mr. Collister said. "Obviously, AIC could sell some of its NCB shares to pay off the debt also, although they probably would not want to do that as they may feel they are leaving money on the table."
In terms of the price that DB&G would pay for the debt, the company did not give a figure, but Christopher Berry, chairman and CEO of Mayberry Investments, told Wednesday Business that, "It is a type of deal that is priced all the time, as the note has a definite income stream, and one can price it based on where interest rates are."
INTEREST RATES
One key consideration is that interest rates in Jamaica are high and volatile, Mr. Berry said. With the term of the debt instrument being so long, it can attract a high discount.
One analyst said it was possibile that DB&G could get a discount of 50 cents on the dollar.
Mr. Collister believes that the loan will be sold for more than 50 cents on the dollar.
"Whilst the Government will no doubt have offered it to AIC, absent a significant discount to face value, AIC may feel that they already have enough invested in Jamaica through their substantial investment in NCB, particularly with their stated preferred policy of using other peoples money," Mr. Collister said. "The Ministry of Finance will probably offer some kind of payment guarantee as a credit enhancement to avoid having to sell what is an illiquid instrument of a private company at a significant discount."
And should the Government sell their NCB interest to DB&G, it is also speculated that a bond would then be issued to allow investors to share in the risk and reward of holding such a long-term instrument.
"This bond would be most lucrative if it was floated privately," said one analyst who requested anonymity. "AIC could then buy up the bonds."
Interest payments from AIC are likely to be passed through to investors on a matched basis through a special purpose vehicle set up for that purpose by DB&G, Mr. Collister said. "This loan securitisation will in fact look like the private placement of a corporate bond to select investors, probably mainly sophisticated international high yield investors, with high minimums so as to exclude the public at large."
In the first quarter of this year, DB&G has facilitated the sale of company shares held by the Government. The investment banker sold off 80 million shares in the insurance giant Life of Jamaica and approximately 25 million shares of communications firm Radio Jamaica.
States Mr. Berry, "As far as I am concerned, DB&G gets most of the Government deals because they are the best investment bank in Jamaica."
