Creating a new financial Cornerstone out of Barita

Observer writer

Wednesday, December 05, 2018

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Raising $8 billion through Jamaica's capital market is no easy feat; even harder for a company that is relatively unknown — a start-up of sorts. But that is what Paul Simpson accomplished in his bid to acquire Barita Investments Ltd (BIL) and restructure Cornerstone Investment Holdings Ltd, the latter a company he founded in April 2015.

In an interview with the Jamaica Observer, Simpson shared that the company recently raised $5 billion through a bond, which was oversubscribed by $1 billion, and at the same time raised an additional $3 billion in equity from round-table commitments from board members of Cornerstone.

He recounted the journey to Cornerstone's purchase of BIL and what the future holds for the company, himself and Cornerstone.

“We approached Sagicor (Investments Limited) in May to support us on the acquisition of Barita, and Sagicor did an initial bond deal for us for $2 billion and they did it in less than three weeks.,” Simpson disclosed.

He reasoned that the responsive and efficient turnaround was clear indication that the brokerage house “understood, in my mind, the importance of efficiency in getting the cost of capital, and the timing for the cost of capital and the time value of money, and how it's important in terms of closing a deal”.

With the bond successfully subscribed in June, Simpson and his team at Cornerstone made clear their intent to buy BIL. In an offer letter posted on the Jamaica Stock Exchange's website dated July 19, 2018, Cornerstone states, among other things, “We hereby today offer to purchase 100 per cent of the issued stock units in Barita Investments Ltd at a price of J$9.20 per share.”

“The offer will open for acceptance on July 26, 2018 and will close on August 16, 2018,” the letter continued.

On August 24, 2018 the acquisition of BIL by Cornerstone Investment was approved by the Jamaica Stock Exchange.

“Now after the acquisition, which closed in August, we decided to do a refinancing of that $2-billion bond and raised an additional $3 billion, and the turnaround time again was very similar to the initial one,” Simpson stated.

“The $5-billion raise was clearly heavy lifting for any team, and especially for a start-up, which was Cornerstone that doesn't have a track record in the market.”

Initially a seven-year note, the tenure of the bond was lessened to five years with a coupon rate of 7.25 per cent, secured by Barita shares in Cornerstone United Holdings Jamaica Limited, and approximately US$13 million in cash, Simpson revealed. The bond proceeds will be used to expand Cornerstone's portfolio companies BIL and MF&G Merchant — the latter purchased on December 22, 2016, a day before Simpson's birthday.

Simpson pointed out that the process of securing the funds was made more challenging as other bonds for more established entities were being floated with similar, if not more, attractive rates of returns.

He credits the success of Cornerstone's capital raise to the hard-working team at Sagicor Investments Ltd.

“As an entrepreneur, you want to feel that your partners are in with you for the long haul and not in it to take advantage of you the entrepreneur, and so the term sheets that we got from various other entities — the offer to finance — we found was very onerous to the business and would have potentially made our journey that much harder,” he reasoned.

The founder of Cornerstone argued that Sagicor understands entrepreneurs and what it takes to build a business, “and so the conditions of the loan from Mischa (McLeod) and her team were very reflective of what it takes to help an entrepreneur build a business”.

In response to the praises heaped on her and her team, McLeod, SIL assistant vice-president — capital markets, explained that undertaking the bond transaction demonstrates Sagicor's support for Cornerstone's vision and the growth path and strategy that Simpson and his board has developed for Barita; in particular, building on Rita Humphrey-Llewin's legacy.

To this SIL CEO Kevin Donaldson added: “So what we find interesting about this project, what we liked about it is Paul — he's aggressive and ambitious. He has a very strong team surrounding him... So that's two things that we saw: We saw that this was a guy who is going to build a company, a strong financial company for the Caribbean, with strong support in terms of his board and his shareholders.”

But why would a company like SIL be willing to support a company that could potentially threaten its position in the investment sector?

“So when we went into the transaction, we acknowledged that they would become a competitor eventually, but we believe in building Jamaica,” Donaldson clarified.

“We supported this transaction because we believe that in having diverse kinds of financial institutions, it would help to build Jamaica; and the more options people have, is the more developed our financial markets will become,” he said, adding that he hopes to see Jamaica become a First World country.

And since Cornerstone also owns MF&G Merchant Bank, this augurs for Jamaica's push for financial inclusion, Donaldson explained. Added to that, the fundamentals behind the deal were very attractive — the pricing of the deal, as well as the ability to ensure that investors were protected.

More importantly, the Sagicor CEO, like McLeod, believes in the long-term vision of team at Cornerstone, a principle not lost on Simpson. As such, the Cornerstone CEO has begun to assemble a “robust board” with “the knowledge base for the [financial] industry and a mixture of skill sets”.

Simpson lists as board members of Barita: founder Rita Humphrey-Lewin, Mark Myers as chairman, himself as deputy chairman, Duncan Stewart, Phillip Lee, Carl Domville, CEO Ian McNaughton, and James Godfrey.

Since August, he has also recruited industry heavyweights to be a part of Barita's management team. So far he has hired Jason Chambers — previously vice-president of investment management at GK Capital — as chief investment officer; Robert Drummond from First Global Financial Services; Barbara Hume, former head of Antigua Commercial Bank; and Weldon Maddan, a former director and senior vice-president at CitiGroup.

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