Cornerstone Financial Holdings Limited (CFHL) has expressed confidence that it will successfully defend a US$4-million lawsuit filed by minority shareholder Sagicor Investments Jamaica Limited (SIJL) against the company.

Sagicor Investments filed a claim against Cornerstone and its board of directors in the Supreme Court of Barbados in relation to shares sold in rights issues and the alleged exclusion of Sagicor from the share sales.

However, in a release late Monday, Cornerstone hit back at the allegations.

According to Cornerstone, in June 2020, shortly after the onset of the novel cornavirus pandemic, it indicated to SIJL – a subsidiary of Sagicor Group Jamaica (SGJ) – as well as its other shareholders its intention to raise additional equity capital via a rights issue to further capitalise its subsidiaries.

“The details of the impending 2020 rights issue were presented by Cornerstone to Peter Melhado (chairman – SGJ), Christopher Zacca (president and CEO – SGJ), and other members of SGJ and SIJL’s senior leadership. The consequences of SIJL’s decision not to participate in Cornerstone’s fund-raising efforts were fully explained, acknowledged, and understood,” the release stated.

According to Cornerstone, SIJL at the time held a 4.50 per cent shareholding in both Cornerstone United Holdings Jamaica Limited and CFHL, granted to the company after it acted as arranger and underwriter with respect to financing CFHL’s 75 per cent majority acquisition of Barita Investments Limited via a takeover bid on the Jamaica Stock Exchange.

According to Cornerstone, the details of the impending 2020 rights issue were further ventilated at an extraordinary general meeting of all Cornerstone shareholders (including SIJL) who it said unanimously voted in favour of the proposed 2020 rights issue. The 2020 rights issue closed in July 2020 and was oversubscribed.

“Notably, before closure of the 2020 rights issue, Cornerstone received a letter from SIJL indicating its intention to abstain from participating in the 2020 rights issue. Resulting from SIJL’s decision not to participate in the 2020 rights issue its shareholding fell from 4.50 per cent to 3.47 per cent,” the company said.

The release further stated that in July 2021, a few days after the notice of another capital raise was dispatched to shareholders and approximately a year after the successful closure of the 2020 rights issue, Cornerstone received a letter from SIJL in which SIJL claimed that it suffered losses of US$4.058m resulting from the 2020 rights issue and demanded compensation.

“SIJL further claimed that these losses were the result of the dilution of its shareholding following the 2020 rights issue. This dilution, however, was the natural result of SIJL’s decision to abstain from participating in the 2020 rights issue. Cornerstone responded to SIJL indicating its disagreement with the claim,” the release stated, adding that SIJL followed its initial letter with a series of letters, which included threats of pursuing legal action against Cornerstone and its directors in respect of its claims around the 2020 rights issue.

Cornerstone further stated that in July 2021, it returned to its shareholders via an EGM to propose raising additional equity capital via another rights issue and an additional private offering. The 2021 rights issue and APO were approved by all Cornerstone’s shareholders except SIJL. Both the 2021 rights issue and the Cornerstone APO were oversubscribed and successfully closed in September 2021, the company said.

“Consequent to SIJL’s non-participation in the 2021 rights issue, SIJL’s shareholding fell to 2.77 per cent post both fund-raising exercises,” added Cornerstone.

According to Cornerstone, in late August 2021, SIJL proposed to the company that it would stay legal action if Cornerstone bought or guaranteed the sale of SIJL’s Cornerstone shareholding.

“While Cornerstone is in contact with one or more potential buyers, Cornerstone declined the unusual request to guarantee the sale of SIJL’s Cornerstone shareholding as it has no interest in or need to buy its own shares. In response to this fact, Cornerstone anticipates that SIJL may take legal action against Cornerstone and/or its directors,” the release stated.

Cornerstone note that Sagicor’s US$4-million claim represents approximately 0.72 per cent of Cornerstone’s shareholders’ equity which stood at US$550 million as at September 2021 and 0.46 per cent of Cornerstone’s total assets, which stood at US$859 million as at September 2021.

It noted that for financial year ended September 2021, Cornerstone generated US$72 million in net profits and returned over US$13.6 million in dividends to its shareholders during the period.

For financial year ended September 2021, Cornerstone generated US$72M in net profits and returned over US$13.6M in dividends to its shareholders during the period.

“Cornerstone has sought legal advice on the merits of SIJL’s claim and based on advice received from senior counsel from both Barbados and Jamaica, they are of the view that both CFHL and its directors should be able to successfully defend SIJL’s threatened claim,” the release concluded.

CFHL is a privately owned investment holding company incorporated in 2017 and domiciled in Barbados. CFHL owns 74.16 per cent of Barita, a full-service investment banking and asset management firm domiciled in Jamaica and listed on the JSE, which it acquired in August 2018. CFHL’s sister company, CUHJL is a Jamaican domiciled entity incorporated in 2015 and owns 100.00 per cent of Cornerstone Trust & Merchant Bank Limited, which it acquired in December 2016. CUHJL intends to apply for a financial holding company licence as required under the Banking Services Act.