With an ambitious US$300-million target of originations over the next three years and insatiable demand from companies, Sygnus Credit Investments Limited (SCI) is looking to return to the capital markets in a bid to raise an additional US$15 million – US$25 million ($2.31 – $3.85 billion) through the issuance of redeemable preference shares.

SCI last approached the capital markets in January 2021 when they executed a US$27.1-million additional public offering (APO). Since then, the company has grown its consolidated balance sheet from US$71.69 million to US$151.63 million as of March 2023. With a pipeline of US$100 million and above for private credit from clients, SCI is seeking to raise new capital from various avenues.

“We’re going to have a preference share offer that is going to be north of J$2 billion as we’re still finalising the terms with our partners, but we expect it to be a substantial raise just based on the sheer volumes of transactions that we need to fund. The fact that we actually have some dedicated projects that we’ve been working on for quite a while. The pipeline has been cemented and to fund these which are primarily in the Jamaican space, we want to raise that capital,” said co-founder and chief investment officer of Sygnus Capital Limited Jason Morris at SCI’s earnings call on Wednesday.

In the quarterly report, the management discussion and analysis mentioned that the preference share raise was meant to maintain the capital mix of SCI while supporting the growth and expansion of its origination pipeline. SCI’s debt to total assets was 0.46 times which was near the 0.50 times limit with debt to equity at 1.00 times which is below the 1.25 times target and 2.00 times limit.

Of the US$15 million to be raised on a short-term note, SCI raised US$5.80 million during the third quarter (January to March) which saw it have dry powder (cash) of US$3.71 million at the end of the period. SCI is also continuing negotiations for a US$100-million credit facility and quasi debt options from international financing partners.

“We’re advancing the discussions and what we’re trying to do, nobody has done it before. There are many hurdles that we have to overcome. Obviously, SCI is an investor that invests across multiple jurisdictions. So, there’s that challenge to satisfy many little nuances that we have to go through from a due diligence perspective to get those facilities structured in a way that will facilitate the deployment of capital in more than one jurisdiction,” Morris added on the update on the credit facility.

While SCI’s acquisition of 93.66 per cent in Acrecent Financial Corporation (AFC) is to yield new opportunities in Puerto Rico and other Caribbean markets, the way in which it is accounted for saw total investment income for the third quarter (Q3) fall 10 per cent to US$1.73 million with net investment income decreasing from US$1.12 million to US$908,798. This was due to the company’s higher use of debt to fund the AFC acquisition and the absence of corresponding interest income to offset the higher interest expense.

However, the foreign exchange gain and reduced credit impairment loss provision resulted in net profit climbing 286 per cent to US$1.43 million with basic earnings per share at US$0.0024.

For the overall nine months, SCI’s income increased 21 per cent to US$7.22 million with net profit rising by 51 per cent to US$4.29 million. This is above the US$3.82 million earned in the 2022 financial year (FY), but just below the US$5.06 million earned in the 2021 FY.

SCI is still waiting for the MV Cayman bankruptcy case to be completed and recover the US$1-million exposure it had to the investment. SCI’s non-performing investments totalled US$2.30 million at the end of Q3 or 1.5 per cent of the investment portfolio.

Buy-back starting next month

With SCI to hit its fifth year as a listed company on the Jamaica Stock Exchange (JSE) on June 18, investors were eagerly awaiting details on the company’s share buy-back programme which was promised in the initial public offering (IPO) and part of the company’s prescribed articles of incorporation.

On Tuesday, SCI disclosed that a US$9-million open market buy-back programme had been approved by the board to be executed over the next three years. This news sent the Jamaican dollar (JMD) shares to a peak $13.38 with the stock halting on the same day while the USD shares have increased to US$0.1005 on Thursday with the best ask price now at US$0.13 which is the 52-week high of the stock.

“When we look at the shares, example JMD shares, the valuation on it doesn’t make any sense. Based on our analysis, at some point, it’s trading at 30 to 40 per cent below its book value. When we look at the shares, we feel that the value that is resident in the company is not being reflected by the stock market price. The thing about stock exchanges like the JSE is it’s inefficient. It doesn’t make sense to us, but the market is the market and what we can do is execute what we thought was a well-designed plan when we started the company and execute on that promise,” Morris explained on the buy-back.

The buy-back is set to begin next month and end in June 2026 with Morris explaining that the target could be hit in a shorter time frame or not all of the capital being deployed. However, he reiterated that the buy-back would be executed to create value for shareholders and be accretive. SCI’s book value at the end of March was US$0.12 or J$17.52 per share.

SCI deployed US$18.38 million during the quarter with the portfolio of companies now spanning 35 businesses across seven territories. The portfolio had a 14.5 per cent yield with an average tenor under two years. Acrecent deployed US$21.22 million over 15 transactions with the yield now on the portfolio at 13.5 per cent on a tenor of less than two years.

Morris highlighted that some of the ring-fenced assets with AFC should be complete by the end of the audit and that they are working hard to meet some very ambitious targets outlined for AFC. SCI had accrued US$2 million in a contingent payment in the 2022 FY with a US$7-million target being the high mark related to the former owners.

When asked about entering Trinidad & Tobago, Morris mentioned that they would be looking at partnerships in the twin island republic as it seeks to deepen its various relationships across the region. However, the country’s precarious foreign exchange situation remains a constraint to entering the market.

“On the Guyana front, we have been looking at opportunities, but nothing yet. If the right opportunity comes, we’ll absolutely do it. Obviously, part of what we have to do is do our due diligence on the Guyanese market. We’re very meticulous when it comes to due diligence and one of the things with Guyana is that its legal and regulatory framework is still pretty young. We want to be sure if we deploy debt capital and something happens and you need to go to court for something, that isn’t a challenge,” Morris closed.