Dolla Financial CEO Kadeen Mairs.

Dolla Financial Services Limited is aiming to raise $1 billion between two tranches with an option to upsize the offer to $1.5 billion through the issuance of secured corporate notes which are set to close on October 4 and subsequently list on the Jamaica Stock Exchange's Private Market.

The indicative term sheet stated that the offer opened on September 1 and will be distributed via private placement by way of exempt distribution under the Financial Services Commission's (FSC) guidelines to accredited and minimum purchase investor. An accredited investor can be an individual who has earned $10 million before taxes in each of the two most recent calendar years or one who has a net worth exceeding $50 million as per the FSC's guidelines for exempt distributions. A minimum purchase investor is defined by the lead broker and arranger, Victoria Mutual Wealth Management Limited, as someone who purchases a minimum of $10 million of the note. The minimum subscription is $1 million with trading blocks in increments of $1 million.

"The net proceeds will be used to refinance existing debt and expand the company's loan portfolio both locally and regionally through acquisitions, as well as organic growth, and to also strengthen its capital base. The proceeds will also be used to propel the diversification of the loan portfolio, tapping into new, innovative ways of lending," the indicative term sheet stated.

Both tranches of the bond are for $500 million each with the option to upsize by $250 million each. Tranche I is up to a maximum of three years while tranche II is up to a maximum of five years. Tranche I will pay interest at a rate equivalent to the six months weighted average treasury bill yield (WATBY) plus a spread of 2.54 per cent which will be defined as the base rate. The interest rate will be subject to a floor of 10.50 per cent irrespective of the base rate. Tranche II will pay interest for the first two years at a rate equivalent to the six months WATBY plus a spread of 3.79 per cent which will be defined as the base rate. The interest rate will be subject to a floor of 11.75 per cent during this time irrespective of the base rate before becoming fixed at 11.75 per cent for the remaining three years. Interest is payable quarterly with the principal repayable in full at maturity.

FirstRock Global Holdings Limited, trading as FirstRock Private Equity Limited (FRPE), and Dequity Capital Management Limited are guarantors for the bond. FRPE and Dequity own 60 and 20 per cent of Dolla, respectively.

"People who didn't know Dolla before know Dolla now and come to us for a loan. What you find is if we get $1 billion, it's easy for us to onlend $300 million per month. So, within the end of the year, all that money will be on the run. Microfinance or the lending business is definitely a business where you constantly have to raise funds once there's demand. We're anticipating within the end of the year, we'll be able to deploy all that capital," said Dolla Chief Executive Officer Kadeen Mairs at a Mayberry Investments forum held recently. Mairs is the founder and majority shareholder in Dequity.

Dolla's loan book has grown from $750.50 million at the start of the year to $1.05 billion as of June. This is largely from the $224.83 million equity injection it received when it listed on the JSE's Junior Market on June 15. The company has a US$1-million loan from Derrimon Trading Company Limited maturing on November 11 while its $200-million corporate bond and $100-million unsecured loan from FirstRock Real Estate Investments Limited are due in April and October 2023, respectively.

The latest Bank of Jamaica (BOJ) treasury bill auction on September 7 saw the average yield on the six months treasury at 7.96 per cent which is much higher than the 1.66 per cent average yield seen a year ago. This effectively means that Dolla's bond is priced at the most recent auction yield plus the spread. Tranche I's rate is equivalent to the Productive Business Solutions Limited perpetual cumulative redeemable preference shares which was oversubscribed despite the initial 15 years before the initial call option becomes available. It is also comparable to Access Financial Services Limited's (AFS) unsecured five-year bond which has a fixed rate of 11 per cent for the first two years and becomes variable at 3 per cent plus the six months weighted average treasury bill yield (WATBY) for the remaining time. This $2 billion bond closed recently with AFS's consolidated loan portfolio at $4.65 billion as of June 30.

"Obviously, there will be some consolidation, there will be sell outs and as a money lender, one that wishes to grow strategically through acquisitions, we want to ensure that we have liquidity so that when the opportunity comes, we can look at and cherry pick some good loan portfolios," Mairs added on potential acquisitions for the microcredit sector which is expected to consolidate under regulatory supervision by the BOJ.

While Dolla hasn't had its licensed approved as yet by the BOJ, the central bank has not objected to Dolla continuing operations pending the processing of its application. AFS became the first entity to be approved by the BOJ last month. Lasco Microfinance Limited is awaiting approval by the BOJ on its licence while ISP Finance Services Limited has made no additional public disclosures regarding its submission of an application to the BOJ. Its audited financials made mention of The Microcredit Act but nothing else. ISP had signed a loan purchase agreement with Mundo Finance Limited last October which gave it the right to purchase loans from a medium-sized loan portfolio. Lasco's loan portfolio has shrunk from $1.83 billion in March 2019 to $812.73 million in March 2022. ISP's loan portfolio was at $681.30 million as of June 30.

Dolla's bond is expected to list within 30 days on the JSE's Private Market subject to approval and become the second Junior Market firm after Future Energy Source Company Limited to list its bond this year. The company's financial covenants include a maximum debt to equity of 2.5 times, minimum interest coverage of 1.5 times and minimum equity capital to total assets of 25 per cent. Dolla's non-performing loans represented only six per cent of its portfolio at the end of June with 69 per cent of its overall loans secured as of December 2021. Dolla recently partnered with Innovative Systems and RTA Biz Energy Solutions to offer loans to their customers with another private partnership expected by year end.

"Dolla financial is being run by entrepreneurs and the rest of the businesses are run by businessmen. Businessmen find a good business model and stick to it while entrepreneurs run a business and are finding new ways to scale a business, new innovative channels and we're constantly brainstorming new ideas to scale the business. I think that's the significant strength we have," Mairs closed.

BY DAVID ROSE Observer business writer davidr@jamaicaobserver.com

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