'All roads lead to dividends'
NCB APO to cut debt, fund expansion as bank eyes resumption of dividend payments
As a shareholder I want to make sure that whatever capital is raised minimises dilution by making sure that the return on the capital far exceeds the dilution.

— NCB Financial Group to issue 300 million new shares in APO

— Funds expected to raise around $21 billion to reduce debt and finance expansion

— APO to be floated before year end but price and issue date yet to be settled

NCB Financial Group Chairman Michael Lee-Chin said the company aims to use the proceeds from its impending additional public offering (APO) to clear debts and expand its footprint into new territories. He also added that the funds will help the financial conglomerate in its quest to resume dividend payments.

Lee-Chin gave the details in an interview with the Jamaica Observer shortly after a notice was posted Monday on the Jamaica Stock Exchange's website indicating that NCB Financial Group intends to raise new funds in an APO.

"NCB Financial Group Limited advises of a decision made on September 8, 2023, by the board of the directors, that an extraordinary general meeting should be held for the company to consider the additional public offering ("APO") of new ordinary shares ("the shares") and to apply for listing the shares. The number of shares sought to be issued by way of APO is expected to be up to 300,000,000. The company will in due course issue a notice regarding arrangements for the extraordinary general meeting," the notice said.

NCB Financial Group is to come to market shortly to issue 300 million shares in an additional public offering before the end of this year. The price and date for the issue are yet to be determined.

Lee-Chin said the price for the shares in the APO is yet to be determined but acknowledged the APO will be issued to the market before the end of this calendar year. NCB Financial Group shares closed at $70 on Monday. It has traded between $55.00 and $90.01 in the last 52 weeks, and is down 12.41 per cent since the start of the year but up 6 per cent so far this quarter. If the company issues all 300 million shares in the APO at or close to Monday's price the NCB Financial Group would raise around $21 billion.

"We are going through the process of negotiating the price, and that negotiation will include myself as the major shareholder," Lee-Chin told Business Observer. "But bear in mind that my goal is not to be diluted unless it is accretive," he added. "As a shareholder I want to make sure that whatever capital is raised minimises dilution by making sure that the return on the capital far exceeds the dilution...unless we [are] not doing it," Lee-Chin said. The NCB Financial Group chairman owns 52.68 per cent of the company through Portland Holdings Inc. Lee-Chin said he will be "the most significant investor in the APO" but declined to say how many shares he will buy. However, if he is to maintain his current holdings he would have to purchase just over 158 million shares.

Funds raised will go towards reducing costs — especially those associated with interest expenses on its debt — and to facilitate its planned expansion.

"Going forward, we have to de-leverage because we had taken on a lot of debt — and this is at the group level — to buy GHL [Guardian Holdings Limited, a Trinidad-based Caribbean insurer], so we want to de-leverage. We want to reduce the group's debt and interest expense to basically enhance efficiency and optimise our capital with the intent to pay dividends. All roads lead to dividends," the NCB c-hairman declared.

"Secondly, we want to make sure that our capital base is such that we can scale regionally," Lee-Chin added. He declined to say which countries the NCB Financial Group companies will expand into but said Europe is also a target for the company to expand its Netherlands-based, GHL-owned, Fatum Holdings — an insurance company. The NCB Financial Group, including its Guardian Holdings and Clarien Group subsidiaries, operates in about two dozen territories across the region but still has about half its business in Jamaica and 18 per cent in Trinidad and Tobago.

In addition to those plans, Lee-Chin said having made substantive investments in digitisation to improve efficiency and customer experience, "we want to make sure we replenish our capital".

The financial conglomerate has not paid any dividend to its shareholders since doing so last in May 2021 — a period stretching for more than two years. During that period it had been bolstering its capital — with retained earnings now at $75 billion — to cushion the impact of rule changes on its insurance and banking business, plus tackle the challenges with rising interest rates and higher-than-targeted inflation.

On the insurance side, the International Accounting Standards Board (IASB) issued its rule 17, more commonly called the IFRS 17 (International Financial Reporting Standards accounting rule 17) which changes how insurance contracts will be recognised and measured. IFRS 17 requires a company to recognise profits as it delivers insurance services rather than when it receives premiums from its customers, and to provide information about insurance contract profits the company expects to recognise in the future. It became effective for annual periods beginning on or after January 1, 2023 and should help investors form meaningful comparisons across companies.

On the banking side the Basel Framework, which issues international regulatory standards for banks, issued new standards for capital adequacy, stress testing, and liquidity requirements which also took effect on January 1, 2023, 10 years after originally scheduled. Its aim is to mitigate the risk of a run on banks.

Asked for an update on the progress of finding any new cost savings, one month after the exercise began, Lee-Chin said the company is still examining the books to determine where it can find the savings after finding and implementing $8 billion in cost cuts so far. The areas that cuts will come from are executive compensation, monies spent on consultation, and pulling back some of the spending on digital innovation.

"This is at the (NCB) FG level and we have not yet gone down into the operating businesses as yet," Lee-Chin said in a signal that cost savings will be sought in each company though he refused to be drawn on the level of savings that could be attained.

"I don't want to throw out a number right now because we are still going through it," he said as he pointed out that the $8 billion in savings allow the company to pay an extra $3.30 per share in dividends annually.

"And that is before we reduce the interest expense associated with the debt (that we are issuing the APO to help to reduce)."

BY DASHAN HENDRICKS Business content manager hendricksd@jamaicaobserver.com

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