Seprod Limited is aiming to refinance its existing debt through the issuance of $2.1 billion in unsecured fixed rate corporate bonds between November 14 and 21.

Tranche A of the bond has a maximum $1.2-billion target at 11.50 per cent interest rate over three years while tranche B has a $900-million target at 12.25 per cent over five years as per the indicative term sheet. The minimum subscription is $1 million with the offer open to accredited investors. The manufacturing and distribution outfit had $8.29 billion in long-term debt at the company level in 2021 with $12.50 billion across the group. NCB Capital Markets Limited is the arranger and lead broker.

The bond will pay interest quarterly and is set to commence on the last business day of the first calendar quarter following disbursement with principal to be repaid at maturity. There is an option for Seprod to redeem in part or whole of the bonds after the third anniversary at the call price.

The company has a $1.2 billion bond which is set to mature this month after being issued November 2017. The bond was issued at a fixed rate of 8.25 per cent for three years before it became 2.25 per cent plus the Bank of Jamaica (BOJ) Weighted Average Treasury Bill Yield (WATBY). The average yield on the BOJ 180-day treasury bill has increased from 2.57484 per cent in October 2021 to 8.15211 per cent on October 12. The average yield in November 2021 on the 180-day treasury bill was 3.91756 per cent.

This means that after benefiting from paying below six per cent for the last two years, the rate on the refinanced debt will be more than 500 basis points or five per cent above the variable rate. Seprod’s fixed rate debt ranged from 3.95 per cent to 8.75 per cent at the end of 2021. The BOJ has increased its policy rate from 0.50 per cent to 6.50 per cent over the last year. The BOJ will announce its next decision on its policy rate next week Friday.

Seprod also had unsecured short-term facilities from Citibank, JMMB Bank (Jamaica) Limited, National Commercial Bank Jamaica Limited, and First Global Bank Limited which were repayable between January and April. When Seprod had refinanced $1.60 billion bond at 7.50 per cent in August 2021 and issued a $1.70 billion bond at 6.75 per cent, it was expected to save $5.25 million in interest expense each year going forward. That bond was listed on the Jamaica Stock Exchange’s (JSE) Private Market.

“We are very focused on cash generation, our cash flows and we don’t allow any one size maturity to be in excess of something that we could not manage with our own internal cash generation in any given year. So, we do spread the maturities deliberately to have that level of comfort,” said Chairman Paul B Scott at Seprod’s September investor briefing.

The bond covenants include a minimum current ratio of 1.2 times, minimum debt service coverage ratio of 1.25 times and debt to equity not surpassing 3.5 times. The term sheet also states that the securities are listed within 30 days of the closing date of the bonds if applicable. The listing would be done on the JSE’s Private Market which has seen Future Energy Source Company Limited list its bond earlier this year and Dolla Financial Services Limited set to list its bond shortly.

Seprod is rated jmAA– (local currency) and jmA+ (foreign currency) on the Jamaica national scale and cariA– on the regional rating scale with a stable outlook by the Caribbean Information and Credit Rating Services Limited (Caricris). ‘A’ corresponds to good while AA corresponds to high on Caricris’ rating scale. The rating was reaffirmed by Caricris on June 27 after the company acquired a 60 per cent stake in Trinidad-based AS Bryden & Sons Holdings Limited on June 6. Caricris also stated that it expected the group’s debt servicing metrics to show some improvement as economic activity in Jamaica improves.

AS Bryden is acquiring 100 per cent of Micon Holdings through the issuance of 4,322,767 ordinary shares of AS Bryden to the current owners of Micon Holdings. Seprod’s stake in AS Bryden is set to decrease to 54 per cent if the acquisition of Micon Holdings Limited is completed after certain conditions and regulatory approvals.

Michael Subratie, Caribprop Limited and Curmudgeon Limited were selling shares to AS Bryden staff and eligible investors in Jamaica last month. AS Bryden is supposed to list on the JSE this year and on the Trinidad and Tobago Stock Exchange at a later date.

Seprod’s revenue grew 40 per cent to $27.81 billion for the first six months while its net profit attributable to shareholders climbed 22 per cent to $1.48 billion. Total assets have moved from $45.79 billion in March to $78.07 billion at the end of June. Consolidated shareholders equity has also moved up from $24.06 billion to $30.18 billion over the same time frame. Seprod’s third quarter report which includes a full quarter consolidating AS Bryden is due by November 14.

Seprod’s stock price is up five per cent year to date at $68.03 which gives it a market capitalisation of $49.90 billion.

“We’re more than food, we’re in food and the pharmaceutical health-care space. What we’ve now created is a diversified group that basically gives an investor a bigger opportunity to mitigate their risk while having significant growth opportunities because of what we’ve done,” said Seprod Chief Executive Officer Richard Pandohie on the inelastic nature of the group’s product offerings which are diversified in nature.