DESPITE the 24 per cent drop in consolidated net profit to US$3.82 million ($579.43 million) for its 2022 financial year (FY), Sygnus Credit Investments Limited (SCI) is looking to reimagine its growth profile as it focuses on expanding its private credit offerings in the region along with scaling its Puerto Rican operations.
SCI began its operations in July 2017 with US$16 million and has deployed more than US$220 million of capital across the region, with its balance sheet standing at US$136.79 million ($20.73 billion) and shareholders' equity at US$67.46 million. Apart from its total income increasing 40 per cent to US$11.12 million, SCI's total investment income grew 27 per cent to US$8.25 million. The company has lent to a variety of firms including Derrimon Trading Company Limited, Seprod Limited and Norbrook Equity Partners Limited since listing on the Jamaica Stock Exchange in June 2018.
While the company has managed to maintain sufficient credit quality over the years, it recorded its first charge off of US$3.85 million related to a hotel in the Cayman Islands. The Cayman Islands' borders reopened in November 2021 while the company in question ceased trading in October 2021. As a result, SCI's impairment spiked from US$69,710 to US$3.82 million. Had SCI not recorded the charge off, the net profit would have been US$7.18 million.
"Based on the fact that the court date was moved from August to September and we don't have any additional concrete information about the progress of the capital that the sponsors of the company are raising, we decided to take the full charge on the asset. Between the court date, capital the sponsors indicated that they are raising comes to fruition and the senior and junior creditors get paid out from that refinancing, then we have an amount to write back. However, we have to do the prudent thing. Given that, based on the valuation of the property itself and the fact that we're unsecured creditors on that transaction, we have to do the prudent thing," said co-founder and chief investment officer of the Sygnus Capital Group, Jason Morris in an investor briefing last Wednesday.
He noted that the collateral was 2.5 times the outstanding debt to the senior lender and it was a sponsored deal. He also noted that before COVID-19 the free collateral excluding the debt to the senior lender would have been US$20 million. The court date has been moved from mid-August to September 16, when the fate of the resort will be decided. SCI's annualized loss rate on its portfolio is 0.3 per cent.
"A receiver was put in place; the senior lender has put the asset on the chopping block for selling and the petitioner brought an order to the courts, which would have been heard in late August, to wind up the company if he wasn't paid," Morris added.
SCI's other stage three asset is a haulage company in the bauxite industry yet to restart operations. While the investment is only US$1.3 million, Morris said they're working to have the deal restructured. He added, "SCI was built to provide flexibility to firms. So, we're not trying to kill the business, but we're trying to assist the business to grow as that's our mandate."
Despite the growth path SCI has charted so far, its share price has not fared similarly. It's JMD share price peaked at $30 in December 2019 and closed at an all-time high of $25.75 in February 2020, while its USD share price peaked at US$0.22 with a closing price of US$0.2122 on February 24, 2020. However, at the end of trading last week the shares traded at $13.20 and US$0.1298. This is below the IPO price of $13.72/US$0.11 and the APO price of $16.30/US$0.14.
With a mandate from its IPO to execute a share buy-back no greater than 15 per cent of the initial invitation price within five years of listing, SCI plans to present the programme and the firm's new growth path to shareholders at its upcoming annual general meeting after presenting it to the board of directors this month. Morris explained that the company was planning to buy up to 15 per cent of the shares (J$ and US$) in its upcoming buy-back, and that the structure would be to add liquidity to the market and enhance value for shareholders. Morris believes that the shares are undervalued.
SCI currently has exposure to eight territories and 11 industries when Puerto Rico Credit Fund (PRCF) is excluded, with Jamaica making up 39.3 per cent of the portfolio. When PRCF is included this reaches 13 regions and 16 industries, with Puerto Rico making up 39.6 per cent of the portfolio and Jamaica behind at 24.1 per cent. SCI is currently in phase II where a new Sygnus company related to its portfolio manager will focus on the integration and efficiency of the operations. SCI is almost complete with its US$15.23 million preference share raise. SCI is also in contact with institutional financial partners to secure a credit line nearly 10 or 20 times their revolving credit facility of US$6.5 million for a pipeline of US$20 million.