AS the microcredit sector becomes formalised and regulated by the Bank of Jamaica (BOJ) under the Microcredit Act 2021, Access Financial Services Limited and Dolla Financial Services Limited have hit the ground running to acquire competitors who are planning to exit the sector.
This comes amidst Dolla's expression of interest to acquire full control of Access. Dolla was listed on the Junior Market of the Jamaica Stock Exchange (JSE) on June 15 while Access listed in October 2009. Dolla's loan portfolio as at the end of June was $1.05 billion with 10 locations spread between Jamaica and Guyana, while Access has a portfolio of $4.65 billion spread between 19 locations in Jamaica and the United States of America.
While Dolla is currently benefiting from an initial five-year tax holiday due to its listing, Access is faced with a 33 per cent income tax rate since becoming the first entity to receive a licence and be approved by the BOJ to operate as a microcredit institution. However, the BOJ has not objected to Dolla's continued operations pending the processing of its application. Before the Microcredit Act, the sector was not formally regulated which meant no entity had to report to the BOJ. However, every entity or firm in the microcredit space providing credit to individuals had to apply at the end of July for a licence with the BOJ or cease operations.
"So, I think any private discussions that may take place, or are likely to take place, I wouldn't comment, because those decisions will be taken as a company and an entity. Those don't really relate to Access overall. So, I wouldn't discuss those matters in an AGM," said founder and executive chairman of Access Marcus James, who stumbled to respond at the company's annual general meeting last Thursday at The Courleigh Hotel. James said that the firm would be guided by the JSE rules in response to takeover and merger queries discussions.
When asked if he's been approached by interested individuals to purchase his stake in Springhill Holdings Limited which holds his direct 47.33 per cent stake in Access, James said, "I would not answer that question in this format. I think that it is not a company-related matter."
This was James' first physical appearance at an AGM since the novel coronavirus pandemic with him residing currently in Florida. Frederick Williams was promoted to chief executive officer in June 2021 while James became executive chairman. James was re-elected by shareholders to the board as a director during resolutions.
James is currently in a marriage dissolution/divorce lawsuit in the Broward County Circuit Courts with his estranged wife Julie Thompson-James, who filed the suit on April 5. James' Adept Property Holdings LLC is also listed on the suit. Thompson-James also filed a freezing order and sought to ascertain his assets in an affidavit with the Supreme Court of Jamaica on February 24. The couple got married in 2001 which was a year after the two brainstormed to create Access.
When the Jamaica Observer checked an article of The Law Offices of Johnny Kousa Law, it stated that Florida is an equitable distribution state where marital assets are divided equitably. It said, "On the other hand, marital property includes the assets and property acquired while the couple was married. This is anything from homes, vehicles, jewellery, art, and other physical assets to income, debt, bank accounts, retirement accounts, stock, and other non-physical property."
These cases tend to last 12 to 18 months in Florida.
After the AGM where Williams and James were speaking with the media, Neville James, director and father of Marcus, lambasted the media for its coverage of the Dolla-Access matter. He said, "I think the way the media has handled this is totally abominable. You all claim to be journalists. How many questions have you asked? How many queries did you make? You just accept people telling you nonsense and you write it."
The senior James has been mixing words with Mayberry Investments chairman on Twitter in recent weeks.
Neville owns 2.62 per cent of Access, mainly through Generation 4 Investment Company Ltd. While Marcus could acquire his father's stake and have a 50.05 per cent stake to trigger JSE takeover rules, it would also open it up to the divorce proceedings with Thompson-James. Thompson-James was listed as a connected party in September 2019 with 263,000 shares in two accounts.
Dolla can always negotiate a deal with Thompson-James to buy her shares and could also target Proven Group Limited's and QWI Investments Limited's respective 24.72 and 3.08 per cent stakes, which could then be held through a special purpose vehicle they own more 50.01 per cent or more to gain control of Access. Another option is to acquire more than 20 per cent of the shares and appoint a shareholder-appointed director to the board to influence the direction of the company.
During the post-briefing, the chairman responded," The fact is that at this time, while an expression of interest was put forward, no formal offer was put to us as a board that we could carry to our shareholders. In addition to that, only licensed financial institutions can takeover microfinance entities at this time. Given that Access is the only licensed financial entity, we wouldn't be able to entertain an offer even if it was made at this time," said James to the Sunday Finance.
However, the Microcredit act only speaks to a licencee's intent to acquire, amalgamate or transfer the business to another licencee after applying to the supervisor for approval. The supervisor is the BOJ and its possible Governor Richard Byles.
On Mayberry Investments Limited's forum held last Wednesday, Dolla CEO Kadeen Mairs discussed the company's ambitions to expand not just locally but internationally as well as in the region. The company intends to fund this through a bond offer.
"We got a no objection from the FSC and we're going ahead to do a private placement or exempt distribution. So, basically, we're looking to raise $1 billion with the possibility to upsize to $1.5 billion. It would be to refinance some existing debt that we have as well as look at existing opportunities for acquisitions and secondly organic growth," Mairs said in a confident voice.
Mairs added, So, we're definitely looking at some countries right now that have serious potential and as soon as those become material, then, we'll definitely announce that as well. We've also engaged legal professionals to just let us know what the landscape is like legally with legislations for money lending. What we do is look at countries that have a high growth rate, serious potential."
Williams explained at the Access AGM that the company would be opening a second location in the coming week for its Embassy Loans subsidiary in Florida. The company recently completed a $2 billion bond raise to refinance a $1.29 billion bond due in 2025 and 2026 plus build its working capital reserves. He also explained that the company would be focusing on SME's more going forward considering the company's current loan portfolio of 93 per cent being personal loans.
"So, we are very aggressively looking at growing our business loan portfolio with our small business centre in Cross Roads. Coming out of a pandemic, you have a number of small businesses and microentrepreneurs who would have been impacted and we have new entrants in that space as well," Williams added.
When asked about acquisition prospects under the current market consolidation, Williams added that of the portfolios approached so far, they don't meet the company's risk criteria and had high levels of delinquency. He noted that Access had a seven per cent non-performing loan portfolio.
"A part of our strategy does take into consideration acquisitions. Given the performance of Access and strength of the company we have, we are viewing opportunities wherever they arise. So, right now, we don't have a specific geographic," the CEO added.
Mairs instead said that the company is examining many firms loan portfolios and would pay a discount for any loan book which cannot service any possible debt to be used to fund the acquisition. He added,"There's always a plan for acquisition and I think we're the largest fisher. We have made official non-binding offers and expressions of interest in not only that company [AFS], but also others where we've gotten responses from and as soon as that materializes, we can put that out there. We wouldn't put ourselves in a position to do an acquisition that wouldn't work for the company."
Dolla has been acquiring fresh talent with David Henriques joining Dolla and Access' sales and marketing manager Deveta McLaren who will be leaving at the end of this month. Deveta was left off Access' presentation to shareholders.
When asked about the company's growth prospects due to the slow growing interest income from a larger loan portfolio, Williams said that the competition from the commercial banks amid low interest rates forced the company to be more competitive in attracting customers. Access earned $1.46 billion in interest income from a $2.93 billion loan book to earn a net profit before tax of $801.95 million in its 2018 financial year. However, Access earned $1.58 billion in interest income from its $4.02 billion loan book portfolio in its 2022 FY and had a profit before tax of $650.15 million.
"No, I think that will actually work in our favour and I say that because while commercial banks constantly increase their interest rates, we have already priced our product at a higher premium because we take more risk. So, what that allows us to do is stay at our pricing while they have to increase their pricing to facilitate risk that we have already made provisions for," Mairs responded to the rising interest rate environment and possible implications for loan demand.
The battle between the two microcredit companies will continue in the coming months. Dolla's stock price hit new all-time highs in the last week from the current news surrounding the possible takeover while Access price gained some traction again due to the news. However, both prices declined to $3.35 and $22 respectively at the end of the week following the Access AGM.
"At the end of the day, I want Dolla to be one of those stocks that are high dividend paying stocks that people view as a blue-chip stock. So, that's really my dream for Dolla where people believe in the brand and its reputation to the point where they know they can buy the stock for their kids for 10 to 15 years down the line," Mairs closed.