Nearly two-and-a-half years after entering a transaction with Playa Hotels and Resorts in a deal that was supposed to give parent company Sagicor Group Jamaica (SGJ) greater latitude to regional growth in tourism, Sagicor Real Estate X-Fund is disposing of its stake in the Dutch-based hotel company as the fallout from the novel coronavirus continues to ravage the tourism industry.

The original deal saw X-Fund and other associated Sagicor entities offering four Jewel-branded hotels, the Hilton Rose Hall and two parcels of land in exchange for US $100 million in cash and 20 million Playa shares which made Sagicor Financial Corporation (SFC) the second largest holder in Playa at the time.

The Sagicor assets at the time were valued at approximately $29.6 billion (US $232.7 million) while Playa was trading at close to US$9.30 at the time of the deal which valued the partnership at approximately $286 million at the time.

Despite making steady improvements and improving market share, both Playa and X-Fund were unprepared for the novel coronavirus pandemic which devastated their primary industry.

As a result of the continued impairment and share of loss on both X-Fund and SGJ’s financials, the Sagicor companies have entered into a deal with Playa and its book-running managers to dispose of its stake in Playa. Through this offer, X-Fund will dispose of 10 million shares in an underwritten public offer at US$5.00 per share, while simultaneously assigning an additional 8,501,000 Playa shares to SFC at the same price as the public offer. This offer will run simultaneously with Playa’s shelf offering in which they’ll be offering 25 million new ordinary shares valued at US$125 million. SGJ expects that the transaction will result in gross proceeds of US$91 million ($12 billion) once the offer is complete, barring the underwriter’s option to purchase the remaining 1,499,000 shares in Playa.

X-Fund owns 61 per cent of Jamziv Mobay Jamaica Portfolio Limited which holds 20 million Playa shares.

“We have taken the decision to sell our shares in Playa at this time in order to reduce the risk associated with our investments and the investments of our clients, in the wake of an unprecedented and significant downturn in the global tourism market due to the COVID-19 pandemic.

“With the war chest of cash proceeds from this sale, we will, over the short term, significantly ramp up our investments in commercial real estate to support Jamaica’s economy, and in so doing play our part to help rebuild the country during and after this pandemic,” president and CEO of SGJ, Chris Zacca, said.

SFC currently owns 1,500,000 Playa shares through its Barbadian asset management arm and has an overall ownership stake of 16 per cent before the transaction. Although its overall financial health has been stable throughout the pandemic with the company repurchasing US$11.3 million worth of shares in a buyback, the share of loss arising from the Playa accounting classification has resulted in segment income before taxes falling into the red.

After the transaction, SGJ and X-Fund would no longer have a significant stake in Playa while SFC would hold about six per cent in Playa at the company level.

This is the second largest sale of a top 10 Playa shareholder in two months, following Farallon Capital Management’s decision to dispose of 14,375,000 shares in November at US $4.10 per share for a consideration of US $58.9 million.

Playa sold two of the Jewel hotels it acquired from Sagicor last June, while registering a US$500-million shelf offering with the Securities and Exchange Commission (SEC). This transaction would leave it with about US $375 million in new shares that it could offer to the market pursuant to the shelf registration with the SEC.

Playa’s net loss for the last nine months has totalled US$188.62 million ($27.61 billion) as bookings remain tempered in the Caribbean and Mexican regions.

Playa’s share price initially fell 7 per cent on the news in after hours before rallying back 2 per cent during the Nasdaq trading session.