As various borrowers look to navigate the rising interest rate environment, JMMB Group Limited (JMMBGL) is extending the tenure of some debt instruments through bondholders' approval and refinancing of existing debt issuances.
In a notice posted to the Jamaica Stock Exchange (JSE) on Monday, Jamaica Money Market Brokers Limited (JMMB) stated that it was extending the maturity date on its preference shares issued to JMMBGL. The 6.00 per cent fixed rate US$ cumulative redeemable preference shares and 7.50 per cent J$ variable rate cumulative redeemable preference shares were extended by five years to January 7, 2029. These preference shares are listed on the JSE at $1 each. The 6.90 per cent fixed rate US$ cumulative redeemable preference shares were extended by four years to March 6, 2029. JMMB issued JMMBGL $6 billion worth of preference shares during the financial year. The value of all preference shares held by JMMBGL amounted to $20.88 billion as confirmed by the 2022 audited financials.
JMMBGL has 10 preference shares listed on the JSE with the J$ 7.50 per cent and J$ 7.25 per cent plus the US$ 6.00 per cent and US$ 5.75 per cent cumulative redeemable preference shares set to be redeemed on January 14, 2024. The remaining preference shares are set to mature in March 2025 and March 2028. JMMBGL spent 86 per cent more in interest expense on its preference shares to $1.69 billion due to the issuance of the fixed rate J$ 7.35 and J$ 7.15 preference shares in March 2021 and rising treasury bill yields which impact its variable rate preference shares. The J$ 7.50 per cent preference share was reset to 2.60 per cent in 2021, 5.34 per cent in 2022 and would be 8.96 per cent based on the Bank of Jamaica's (BOJ's) 180-day treasury bill yield of 7.96 per cent in June. The J$ 7.25 per cent preference share was reset to 7.87 per cent in March, above its issuance rate. The JMMBGL preference shares in issue are valued at $28.02 billion
"Interest movements have been a recurrent feature over JMMB Group's years of operations and as such the company adjusts its profile adjusts over time. The changes in interest rates will not only impact the variable rate liabilities but the variable rate assets as well. Therefore, the group will manage its asset and liability profile in the context of market conditions and make decisions on whether to refinance or net payout a particular maturity at the specific point in time," stated JMMBGL group Chief Investment Officer Damion Brown in an email with the Business Observer.
JMMB Bank (Jamaica) Limited announced an increase on its variable rate loans to take effect on August 1 due to the increased cost of funding as the BOJ's policy rate has risen from 0.50 per cent in August 2021 to 5.50 per cent as of June. JMMB Bank (T&T) Limited received unanimous approval from its bondholders in March to extend the maturity date on a TT$100 million unsecured subordinated fixed rate bond by three years to March 28, 2030. The Trinidadian subsidiary is headed by the new CEO Shawn Moses.
JMMB International Limited (JMMBIL) received a credit rating of jmA (foreign currency rating) by the Caribbean Information and Credit Rating Services Limited for the issuance of a US$160 million bond in two US$80 million tranches due in 2025 and 2027. Apart from the bond being fully guaranteed by JMMGL, the proceeds will be used to repay the US$120 million bond issued in June 2020 and provide US$40 million for general corporate purposes including the repayment of a portion of the company's higher cost debt. Interest payments are to be done semi-annually with principal repayments made as a bullet payment upon maturity of each tranche.
The US$120 million bond was done in two equal US$60 million tranches due in June 2023 and June 2025. This bond was used to facilitate the direct transfer of JMMBGL's 22.5 per cent stake in Sagicor Financial Company Limited (SFC) to JMMBIL. SFC paid US$7.47 million in dividends over the last year to JMMBIL.
JMMBGL isn't the only listed company looking to refinance its debt especially as the BOJ and United States Federal Reserve continue to hike their rates amid historic inflation numbers. Caribbean Producers Jamaica Limited (CPJ) is looking to raise US$13 million to refinance existing debt. The five-year unsecured corporate note was originally sent to clients at 6.50 per cent with a closing date of June 30, CPJ's financial year end. However, on the day the offer was set to close, it was extended to July 29 with a seven per cent rate. Mayberry Investments Limited (MIL) is the arranger for the bond.
CPJ has a $500 million bond due in May 2023 with related company long-term promissory notes and related party balances now payable after the financial year ended. CPJ had US$13.18 million in external party debt as of March 2022.
Some finance executives who didn't wish to be identified stated that the CPJ offer rate and tenure isn't something they'd take now when rates are still rising. They stated pension funds and other institutional investors are going for shorter term instruments or for higher rates now.
"Locally, I think the biggest issue for money managers which affects the FX (foreign exchange) market is where will interest rates stop. We're seeing where you're not getting as many people invested on the long tenure cycle because they want to keep funds short. They want to get a clear signal that interest rates have peaked before they start investing long again. I think a lot of those things will potentially lead to a short-term disruption of the credit market in the sense that the ease at which people were able to get credit and funding will start to slow a bit. No institution wants to lend long at low interest rates and interest rates are much higher than that," stated MIL CEO Gary Peart at a May investor forum.
The JMD has appreciated against the USD from $155.08 to $151.56 between January to June. The Federal Reserve has moved its fed rate 150 basis points (1.50 per cent) year to date with some Wall Street analysts expecting the rate to increase by another 175 basis points over the next four meetings.
"Kudos to Governor Byles and his team, he got it right this time because the reality is when he gets it wrong, he hears about it. We've managed to come through, not unscathed, but I think we've come through a lot better than most. The question is how do we manage the next couple months and I think that exchange rate is going to be the indicator that tells you whether it's done properly or not," Peart closed.