It's not material to shareholders

■ Anthony Wilson

IN AUGUST 2018, a company called Cornerstone Investment, founded by a Jamaican named Paul Simpson, then 34 years old, offered to buy 75 per cent of Jamaica's oldest brokerage firm, Barita Investments, for the

princely sum of J$3 billion at J$9.20 a share.

At its September 30, 2018 year end, just

six weeks after the friendly takeover, Barita declared after-tax profits of J$363.24 million.

In two years, by September 30, 2020-a period that was impacted for almost six

months by the Covid-19 pandemic-Barita declared after-tax profits of J$2.75 billion, an increase in profitability of more than seven times.

The 75 per cent stake that Cornerstone paid J$3.07 billion for in August 2018, was worth about J$77 billion by Barita's Septem ber 30, 2020 year end, according to information from the website of the Jamaica Stock Exchange (JSE).

The Barita share price, which was J$9.20

when Cornerstone acquired a majority stake in the company in August 2018, had skyrocketed to J$95.87 at the close of trading on September 30, 2020-an increase of more than 10 times.

And the Jamaican investment company's explosive performance continued into its 2021 financial year. From October 1, 2020 to

March 31, 2021-a period entirely dominated by the impact of Covid-19-the company

reported after-tax profit of J2.1 billion, 104

per cent more than the $1 billion it declared

for the first six months of its 2020 financial

year.

How was Barita able to achieve such stratospheric performance, while other fi nancial companies around the Caribbean

experienced declining profitability since

March 2020?

According to its 2020 annual report, in

2019, Barita held two non-renounceable rights issues: In March 2019, it offered its

shareholders ten additional shares for every 17 they owned, raising J$4 billion. And in

September 2019, it offered 11 addition al shares for every 100 shares owned. That raised over J$5 billion.

The company also issued 100 million four per cent preference shares at J$10 a share in May 2019, raising J$1 billion.

These fund-raising events allowed Bar ita to increase its investment securities by almost four times to J$13.9 billion at its September 2020 year end from J$3.5 billion at the end of September 2018. And the fund-raising also allowed the company to grow its balance sheet, with its total shareholders' equity increasing by almost nine times between September 2018 and Sep- tember 2020. Barita's total assets increased by 274 per cent to J$70.69 billion as at Sep tember 2020 from J$18.88 billion at the end of September 2018.

And then in September 2020, Barita

raised an additional J$13.5 billion by way of

an oversubscribed Additional Public Offer -

ing (APO).

Majority State-owned FCB's 100 per cent owned subsidiary, First Citizens Investment Services Ltd, purchased 54,280,000 shares at

J$52 a share in the Barita APO, equal to five

per cent of the company. That works out to

be J$2.82 billion, which was about US$19.76

million or TT$134.17 million, according to

Express Business calculations. Neither FCB nor FCIS has ever disclosed the considera tion for that transaction.

FCIS acquired an additional 12 million Barita shares (1.1 per cent of the company)

on December 4, 2020 at an estimated J$90 a share for a consideration of J$1.08 billion. That was about US$7.40 million or about TT$50.29 million.

FCIS now owns 66,280,000 Barita shares, which it acquired for an estimated $184.46 million. The FCIS stake in Barita was worth an estimated J$251 million on Monday, which is an estimated 36 per cent paper profit on its investment for FCIS in seven months.

With 6.1 per cent of Barita, FCIS is now the second largest shareholder of the high-fly -

ing, explosively profitable Jamaican invest -

ment company. Barita's largest investor is Cornerstone Financial Holdings Ltd, the pri vately held investment company formed by Jamaican millennial, Paul Simpson, which now owns 74 per cent of Barita.

But FCIS did not disclose, at the time, these potentially profitable investments to its shareholders, the T&T Stock Exchange (TTSE), the T&T Securities and Exchange Commission (TTSEC) or even the Minister of Finance, as a material change event. FCB's head of legal, compliance and gov - ernance, Lindi Ballah-Tull said, by e-mail, the reason the investment in Barita by FCIS was not disclosed as a material change event

was because FCIS purchased the shares "in

the ordinary course of business.'

On Monday, Ballah-Tull said: "First Citi -

zens Investment Services Limited (FCIS) is a broker dealer and a reporting issuer registered with the Trinidad and Tobago Securities and Exchange Commission. I do reiter- ate, however, that FCIS' participation in the Additional Public Offering (APO) of Barita Investments (Barita) as indicated in our sev eral e-mails, was done in the ordinary course of business.'

T&T's 2012 Securities Act requires reporting issuers to make timely disclosure of all facts "which would be considered important

to a reasonable investor in making an invest-

ment decision." On Monday morning, Express Business enquired of the T&T Securities and Exchange Commission (TTSEC) whether

FCIS had formally communicated with the

securities regulator on its acquisitions of

shares in Barita. There was no response from

the TTSEC up to late Monday.

According to the State Enterprise Performance Monitoring Manual, the acquisition

of the stake in Barita Investments would also have required the prior approval of Finance

Minister Colm Imbert.

The manual states: "State Enterprises or

their subsidiaries are required to obtain pri-

or approval of the Minister of Finance for the acquisition of significant assets, new

investments in non-government securities, the incurrence of new/additional long-term

debt and entering into significant contracts

(relative to the company).'

Insider sales

Within a month of the closure of Barita's APO on September 16, 2020, insiders of

the company sold millions of their personal shareholdings in the company.

A JSE filing posted on October 1, 2020 indicated a related party sold 6.1 million

shares during the period September 23 to 25, 2020.

Another filing by the JSE on October 26

disclosed a combined sale of 11,920,870

Barita shares on October 14, 2020 "by two

directors, a senior manager and a connected party.'

The 18.1 million shares the JSE filings dis -

close were sold by Barita insiders account for 1.66 per cent of the company's issued share

capital of 1.085 billion shares.

JSE filings also indicate that another Bar ita insider held 11 million of the company's shares, through a connected entity named 294 Inc, which is registered in St Lucia, as at September 30, 2020. Those shares were not listed as being held by 294 Inc as at December 31, 2020.

Express Business sent that insider an e-mail with eight questions on Saturday, following up with phone calls, a WhatApp message and a LinkedIn query on Sunday.

The insider's assistant said on Monday, the e-mail had been referred to Lance Hylton, Cornerstone's external attorney and its internal counsel, Malindo Wallace.

Paul Simpson, the founder of Cornerstone Investment, which now holds 74 per cent of Barita.