GUARDIAN Holdings Limited (GHL) shareholders will see their stake in the insurer dilute by 13 per cent when a deal with International Finance Corporation (IFC) to convert existing debt and a further US$25 million in capital injection to equity is approved.

But the share dilution follows two years after the insurer tripled its return on an investment in the geographical area for which it took the loan from the IFC in 2006.

GHL and IFC, a member of the World Bank Group, last week reached an agreement to invest US$75 million (TT$473 million) in the common equity of the Group at a price of TT$16 per share.

The price per share that the IFC is investing at represents a 6.6 per cent premium over yesterday’s closing price for the company as quoted on the Trinidad and Tobago Stock Exchange, and a 17 per cent premium over GHL’s 30 day moving average price of TT$13.65,” said GHl’s release issued last Friday.

The agreement includes converting IFC’s current US$50 million (TT$315 million) subordinated loan into common equity, while at the same time investing US$25 million (TT$158 million) of new capital into GHL.

The move will thus reduce GHL’s total liabilities of TT$18 billion as at March 31,2010 by TT$315 million and increase its equity base from TT$2.4 billion to nearly TT$2.9 billion while giving the IFC 12.8 per cent of the the outstanding share capital of the Group.

In May 2006, the IFC had approved US$50 million investment in the form of a long-term subordinated loan to support the medium-term growth strategy of GHL. The expansion was to be focused on entering the less developed Central America/Caribbean Basin markets where GHL would focus on growing its life insurance business. The expansion was also targeted at increasing GHL’s domestic asset management business in Trinidad & Tobago and regionally while further integrating its back-office operations to extract operating efficiencies from recent and future expansion.

This investment followed GHL’s investment in 2005 in a 20.1 per cent stake in the leading Panama insurer, Grupo Mundial Tenedora SA, from which the capital was deployed “in building a network of insurance subsidiaries throughout Central America”, according to GHL’s 2009 annual report.

“Within two and one-half years we were able to triple our investment and decided to realise our gains by disposing of this investment during 2008,” said GHL’s 2009 annual report.

The insurer’s 2008 annual report reported TT$306.4 million as the gain on sale of its Grupo Mundial stake.

In its 2007 annual report, GHL explained that the “acquisition thrust fuelled faster-than-expected expansion and led to a call for further capital funding and the prospect of repeated calls for investment by Guardian just to maintain our 20 per cent stake (in Grupo Mundial), much less move to a greater shareholding”.

“After due consideration of the implications of maintaining our strategic 20 per cent investment, we took the opportunity which was presented earlier this year, to dispose of our entire shareholding at full market value. This was accomplished in early April 2008,” said GHL in its 2007 annual report.

But the Trinidad-based firm said that the sale does not mean the door to Central American was closed.

“We believe there are a number of mutually lucrative areas for co-operation between Guardian and Mundial. Alternative structures for participation in this market are being explored, including the negotiation of a co-investment agreement with Mundial covering the Dominican Republic and certain Andean Pact countries.”

In its 2009 annual report, GHL said it believed that, post the Þnancial crisis, it would be a consolidator in its home market, “while continuing to look for acquisitions in targeted markets like Central America”.

But the firm’s experience in the UK with Zenith Insurance Plc has made GHL more cautious towards acquisitions going forward.

“This more rigorous approach will be embodied as part of the Enterprise Risk Management system we are currently implementing.”

GHL disposed of its investment in Zenith and the associated insurance administration businesses comprising GHL Insurance Services Limited and Link Underwriting Agencies Limited on 31 December 2009, which translated into a loss on disposal of TT$946.5 million.

GHL returned to profitability in the first quarter of 2010 and posted net profit of TT$150 million after posting net loss of TT$821 millino for 2009.

Giri Jadeja, Senior Manager for IFC Financial Markets said, “We are very pleased to strengthen our existing partnership with Guardian through this equity investment, and look forward to working closely with the company as they grow their current businesses and look for potential growth opportunities in the Caribbean and Central America. Guardian’s strong track record, diversified business lines and wide reach in the Caribbean provides the IFC with an excellent platform to deepen insurance penetration and achieve strong development impact in the Caribbean and beyond.”

Jeffrey Mack, Group Chief Executive of Guardian Holdings said, “IFC’s investment is a vote of confidence in GHL, especially when one considers that the IFC is transforming their current secured debt position into an unsecured equity position. Plus, at the same time they are investing new equity into our Group. This demonstrates their belief in not only how we currently operate, but also in our future plans for strategic growth. They will be a key partner for us as we grow and diversify our operations in the region.”

The agreement is subject to the approval of the shareholders of GHL as well the Board of Directors of the IFC. GHL will advise its shareholders in due course of the next steps regarding this transaction.