VMIL raising $1.7 billion in bond offer
Burchenson...we're being very discrete in how we deploy new capital for trading.

VICTORIA Mutual Investments Limited (VMIL) is aiming to raise $1.7 billion through four tranches of fixed and variable rate corporate bonds between October 14 to October 31.

The unsecured bond will be done in four tranches to finance various corporate investment activities and to cover transaction-related costs as per the indicative term sheet. The minimum subscription amount is $100,000, with minimum trading blocks of $10,000. The bond is eligible as an allowable asset under the retail repo trust and will be distributed via private placement under exempt distribution.

Tranche A (i) will have a variable rate composed of a fixed rate of 3.25 per cent plus the six-month Weighted Average Treasury Bill Yield (WATBY) held immediately prior to the commencement of each quarterly interest period until maturity. Tranche A (ii) will have a fixed rate of 10.50 per cent per annum. Tranche A will see $350 million being raised for each portion and a tenure of three years.

Tranche B (i) will have a fixed rate of 11.75 per cent per annum. Tranche B (ii) will have a variable rate composed of a fixed rate of 3.75 per cent plus the six WATBY held immediately prior to the commencement of each quarterly interest period until maturity. Tranche B will see $500 million being raised for each portion and a tenure of five years.

The Bank of Jamaica's (BOJ) latest Treasury Bill auction on October 12 saw the average yield at 8.15211 per cent, which is well above the 2.57484 per cent average yield seen in October 2021. The BOJ has increased its policy rate from 0.50 per cent to 6.50 per cent over the last year, up to September 30.

Principal will be repaid for all tranches at maturity as a bullet payment with interest accruing on issue date. The first interest payment will become due and payable three months after the issue date. Interest will be payable quarterly up to and including the maturity date. The bond covenants include minimum equity capital of $4 billion, minimum return on assets of 1.00 per cent, and minimum interest coverage ratio of 1.5 times.

This represents VMIL's latest round of additional borrowing as the company continues to de-risk its balance sheet and that of its wholly owned subsidiary, VM Wealth Management Limited. VMIL borrowed $302.40 million in the first quarter and $851.49 million in the second quarter, with VMIL Chief Executive Officer Rezworth Burchenson confirming that the proceeds were redeployed into the margin loan business.

VMIL is rated jmBBB+ (local currency) and jmBBB (foreign currency) with a stable outlook by the Caribbean Information and Credit Rating Services Limited (CariCRIS). VMIL was able to raise an additional $2.9 billion in 2021 from the rating which was recently reaffirmed by the rating agency.

"In 2022, and Voneil spoke about it, you're not seeing a lot of growth in the balance sheet year over year because this is not the year to push balance sheet growth because it may impact capital. What we're focused on is off-balance sheet growth — and we're doing that in many ways," said Burchenson at the company's investor briefing on September 14.

VMIL's asset base has shrunk by seven per cent or $2.12 billion to $29.12 billion for the first six months up to June. This is being done in light of the volatile market activities at the time and is primarily occurring at the VM Wealth level. Repurchase agreement liabilities are down $2.91 billion to $16.74 billion while resale agreement assets are down $2.51 billion as well. Shareholders' equity is down 20 per cent to $3.24 billion as the investment revaluation reserve went from positive to negative due to the drop in investment security values.

The company has also suspended dividend payments as a matter of prudency as it focuses on its capital and liquidity preservation for VM Wealth.

Despite these negative headwinds VMIL is continuing to expand its business lines such as the implementation of a robust loan system platform, more opportunities in the commercial real estate space ,and also an aim for VM Wealth to be the first broker to offer digital asset trading once launched on the Jamaica Stock Exchange. VMIL also acquired a private equity stake in Home Choice Enterprises Limited and will be contributing US$10 million ($1.54 billion) to the US$100-million Jamaica Actus Small & Medium Enterprises Fund I (JASMEF).

It has also received three rounds of regulatory approval in Jamaica and Barbados surrounding its acquisition of Republic Funds (Barbados) Inc, which was announced last November. The mutual funds under this umbrella corporation include the Republic Property Fund BBD$1.56 million, Republic Income Fund with assets of BBD$13.30 million, and Republic Capital Growth Fund with assets of BBD$7.31 million in 2021. VMIL's off-balance sheet assets under management was $33.88 billion at the end of June.

"The acquisition of Republic Funds in Barbados is an asset management play that does not require a large use of capital. We've been doing some amazing things in 2022. It's [Capital Markets] a business in most circumstances which, unless we're underwriting, doesn't require a large use of capital. We're trying to grow the business through those areas to protect the capitalisation of the organisation. We're seeing growth in asset management and we believe that the Barbados transaction is a platform for the southern Caribbean. We don't know where it's going to take us, but we're quite excited," Burchenson added on business activities which require less capital.

VMIL's net interest income and other operating revenue were up 10 per cent for the six months to $1.08 billion. This included an 86 per cent rise in net fees and commissions to $568.87 million, with Group Finance Manager Voneil Wynter noting that one transaction in Q2 brought in $124 million. Net profit declined five per cent to $250.71 million as staff costs and other operating costs increased during the period. Despite the improved business activity for the company VMIL's stock price is down 21 per cent year to date at $4.87, which leaves it with a market capitalisation of $7.30 billion.

"We're being very discrete in how we deploy new capital for trading. Having said that though, the performance from the team for the first half is commendable. I'm optimistic about the latter part of the year, primarily based on the competence of the team and also the fact that we have a very strong risk framework that we're always leveraging to protect the downside," Burchenson closed.

BY DAVID ROSE Observer business writer davidr@jamaicaobserver.com

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