As interest rates keep pace with inflation and the equities market experiences a reduction in value traded, along with liquidity, Mayberry Investments Limited is seeking to raise a minimum of $5 billion across four tranches as it plans to expand its growing loan portfolio.

This is Mayberry’s first public bond offer which affords retail investors the opportunity to participate in the higher yielding fixed-income market, which tends to be restricted due to the minimum subscription or for a particular set of private investors.

Bonds are usually registered under the Financial Service Commission’s (FSC) exempt distribution guidelines, which limit these offerings to accredited investors who have either a $50-million net worth or have earned at least $10 million each year in income over two calendar years. Even the Jamaica Stock Exchange’s (JSE) recently introduced private market is restricted to accredited investors.

The secured bond will also be listed on the JSE bond market, which currently has only two bonds which are Access Financial Services and Caribbean Producers Jamaica’s bonds, with the latter set to mature in May 2023. If it surpasses the $1-billion mark, it would be the largest bond to be listed on the JSE’s bond market since it was relaunched in October 2013.

“The last six months have seen extremely volatile securities markets. In such times, having exposure to fixed rate secured debt that matches the investor’s need for funds can provide a valuable cushion to ride out the inevitable dips in equities,” said chairman Christopher Berry in his message to prospective investors in the prospectus.

The JSE has seen mixed performance in 2022, with the JSE Index being down 14 per cent year to date to 340,153.88 points, which is still below 2019 levels of 509,916.44 points. The Junior Market Index reached an all-time high in May before retreating in the last quarter with it being up 14 per cent year to date at 3,897.28 points. The USD Equities Index is up 16 per cent year to date at 226.14 points.

There has also been a wave of ordinary stocks hitting 52-week lows and some securities hitting five-year lows. This has also resulted in some investors shifting their capital to preference shares, for which variable rate instruments, such as JMMBGL7.50 per cent preference shares, are trading above its par/issuance value of $1, while fixed rate instruments, such as JMMBGLUSD5.75 per cent preference shares are trading at par of US$1.50. Investors have also been impacted by the decision of some financial companies to skip dividends in favour of retaining capital amid the volatile financial markets.

“For retail investors that are not able to invest as accredited investors there has been very little opportunity to invest directly in short- to medium-term debt instruments of local blue-chip companies. That has led some retail investors to have portfolios that are heavily overweight equities,” the chairman’s message added.

The secured bond is split into four tranches, with each one having a target of $1.25 billion. The bond is secured by Mayberry’s secured loan book pool, which has an aggregate value of $5.69 billion, with a market value of $13.52 billion from 390 loans. The financial covenants on the secured bond offering include a maximum leverage (debt to equity) ratio of no more than four times and a minimum current ratio of 1.20 times.

Tranche I will have a fixed interest rate of 9.25 per cent for 13 months. Tranche II will have a fixed interest rate of 10.00 per cent for 18 months. Tranche III will have a fixed interest rate of 11.00 per cent for 24 months. Tranche IV will have a fixed interest rate of 12.00 per cent for 36 months. All tranches will pay interest quarterly and have principal repaid at maturity. Mayberry can voluntarily redeem the bonds early at par, without premium or penalty prior to maturity subject to a 30 days’ notice. If the combined demand for the four tranches surpasses $5 billion, the bond can be upsized to $7 billion.

Mayberry’s consolidated loans and other receivables have increased 55 per cent this year to $7.92 billion. The broker had 40 per cent of its gross $5.27 billion consolidated loans and other receivables as client margins. The proceeds from the secured bond will also be used for general corporate purposes.

“We have quite a good-sized loan book, and right now we have a lot of demand for loans. We actively give loans against securities, whether that be stocks, bonds, or any other securities that we trade and that helps to make the accounts of the clients a lot more liquid. It enables us to reach out to more people and give more credit,” Berry added at the Mayberry investor briefing held last Wednesday.

Mayberry’s bond offering is one of the debt offerings occurring right now, with Vice-President of Investment Banking Dan Theoc mentioning that five different other offerings are happening. Victoria Mutual Investments Limited has a $5.8-billion fixed and variable rate corporate bond, NCB Capital Markets has a $4.5-billion unsecured bond, JMMB Group Limited has a $5.25-billion raise, and Theoc mentioned Barita Investments trying to raise around $5 billion.

The Bank of Jamaica (BOJ) has increased its policy rate from 0.50 per cent to 7.00 per cent over the last year as point-to-point inflation tracks around 9.9 per cent as of October. Mayberry Chief Executive Officer Gary Peart gave an example that the real rate of return is negative for people earning at a three per cent interest rate compared to tranche III, which would give an investor around three to four per cent in a real rate of return.

“At this point we feel interest rates will be peaking over the next couple months, which was supported by the BOJ’s view. They want to pause and see the effects and impact, etc. Everything seems to suggest rates might peak and start to trend back down, but the simple reality is that we might not be 100 per cent correct. Interest rates can stay at this level for six months, if we have an external thing that occurs, and rates could potentially go higher. It’s not 100 per cent certainty, which is why we have laddered the different tranches,” said Peart.

Interested investors in the bond can apply at bonberryja.com with Mayberry Investments waiving the $1-million minimum opening amount to open an account with them. Sagicor Investments Jamaica Limited, Stocks and Securities Limited, and Proven Wealth Limited are the selling agents for the offer. Theoc added that there might be another two selling agents added shortly. He also reminded everyone that the entire application process will be digital and that authorised people won’t ask for cash based on the company receiving reports of unscrupulous individuals trying to deceive people.

The minimum amount to apply for any tranche is $20,000 with increments of $10,000. The JCSD processing fee per application is $172.50 with the bond open from December 2 and the closing date set for January 6. Interest payments will be done on March 30, June 30, September 30, and December 30.

“I think it’s a great opportunity for the individual investor. They don’t normally get to access securities like these unless you’re a wealthy person. We started small way back in the day and we want to give the average hard-working Jamaican a chance to earn a good return on their money,” Berry closed.