First Citizens increases exposure to Barita's parent

BY ANTHONY WILSON

LAST month, majority State-owned First Citizens agreed to lend a private Jamaican company, Cornerstone Financial Holdings Ltd (Cornerstone), the majority shareholder of publicly listed Barita Investments Ltd (BIL), up to an additional US$45 million. The two-tranche loan would take the T&T bank's debt exposure to Cornerstone to US$85.1 million, and the debt and equity exposure of the First Citizens group to an estimated US$125 million.

The US$85.1 million debt exposure of publicly owned First Citizens to Cornerstone is disclosed in a Security Confirmation Deed agreed to by the two companies.

The document reveals the following: First Citizens entered into an agree ment, dated April 24, 2020, to lend Cornerstone US$25 million; First Citizens entered into an agree ment to extend an additional loan facility of US$15.1 million to Cornerstone on July 6, 2021; In February 2022, First Citizens "agreed to extend additional credit facilities to the borrower of up to US$45 million,' to be disbursed in two tranches-the first one for US$25 million and the second for US$20 million.

Cornerstone is the beneficial and legal owner of 907,375,930 shares in Barita In vestments Ltd, equal to 74.35 per cent of the company. For the 2020 and 2021 loans, totalling US$40.1 million, Cornerstone agreed to pledge 141,899,268 Barita Invest ments shares.

For the additional US$45 million that First Citizens agreed to lend to Cornerstone in February 2022, the privately held Jamaican company agreed to pledge an addition- al 42,434,065 Barita Investments shares, ac cording to the Security Confirmation Deed.

That means Cornerstone agreed to pledge a total of 184,333,333 Barita Invest ments shares to provide collateral coverage for the three credit facilities extended by First Citizens.

Cornerstone also agreed to pledge enough Barita Investments shares to main tain collateral coverage of at least 150 per cent for the US$85 million it borrowed, or agreed to borrow, from First Citizens.

Collateral coverage of 150 per cent for the three loan agreements totalling US$85.1 million, requires Cornerstone to pledge Barita Investments shares worth US$127.65 million.

On Friday, Barita Investments shares closed trading on the Jamaica Stock Exchange at J$89.23 per share, resulting in the 184,333,333 shares that Cornerstone agreed to pledge being worth J$16.44 billion or about US$107.50 million. The US$107.50 million value on the pledged shares, as of Friday falls short of the US$127.65 million that Cornerstone would be required to pledge to access both tranches of the 2022 loan agreement.

The 184,333,333 Barita Investments shares pledged by Cornerstone are equal to 20.31 per cent of the company's sharehold- ing in Barita Investments.

First Citizens Investment Services, a wholly owned subsidiary of the First Citizens holding company, is listed as own- ing 90,795,154 Barita Investments shares, equal to 7.44 per cent of the company, according to Barita's first quarter report, for the period ending December 31, 2021.

Previous Sunday Express reports have estimated that First Citizens, through its subsidiary FCIS, paid US$40.6 million to acquire the 7.44 per cent stake in Barita Investments.

Cornerstone borrowed the first two loans from First Citizens to partly fund its participation in the 2020 and 2021 Additional Public Offering (APO) of shares by Barita Investments.

The first loan by the local bank to Cornerstone- for US$25 million and dated April 24, 2020-is due to mature in April 2023 and pays a variable interest rate of LIBOR plus a reprice margin, which was 7.79138 per cent, as at September 30, 2020, according to Cornerstone's unaudited 2020 financials.

On Friday at 3:.4 p.m., the Sunday Express sent the Security Confirmation Deed document and nine questions to the corporate secretary of First Citizens, Lindi Ballah-Tull. Her response was: "In keeping with the legal, regulatory and/or statutory requirements of the Financial Institutions Act, Chapter 79:09 of the Revised Laws of the Republic of Trinidad and Tobago, we are bound by the duty of confidentiality and are therefore, unable to respond to the questions posed or issues raised in your email.'

The Security Confirmation Deed was prepared by the prominent Jamaican law firm, Myers, Fletcher & Gordon and filed with the companies' registry in Barbados, where Cornerstone is currently domiciled. The document was signed by Cornerstone directors, Paul Simpson and Arnold Aitken. Signing for First Citizens were Ballah-Tull and deputy CEO business generation Jason Julien.

The document is dated February 8, 2022. About two weeks after the signing of the Security Confirmation Deed, Julien and First Citizens CEO Karen Darbasie flew to Kingston for meetings with senior officials of the current administration in Jamaica.

Accompanied by Cornerstone's chairman, Mark Myers, and its founder, Paul Simpson, Darbasie met with Jamaican Prime Minister, Andrew Holness, on February 23, 2022. Darbasie and Julien met with Jamaica's Minister of Investment, In dustry and Commerce, Aubyn Hill, on the same day, and with the island's Minister of Finance, Nigel Clarke, on February 24. Those talks were deemed to be exploratory by sources in Jamaica.

Central Bank on foreign loans

On Thursday and Friday, the Sunday Express asked the Central Bank a number of questions pertaining to local banks making US-dollar loans: Q: Does the Central Bank impose any restrictions on the ability of its regulated institutions to extend USD loans?

A: The Central Bank does not currently have specific restrictions on foreign currency loans per se. Our credit guidelines encompass loans in both domestic and foreign currency and encompass factors related to credit risk management, capital adequacy, liquidity and concentration.

Q: Does the Central Bank have prudential guidelines governing lending in US dollars, eg: collateral coverage; currency of repayment; interest rate charged; fees imposed, etc?

A: As noted above, the current Credit Risk Management Guidelines are broad- based and are available on the Central Bank's website. One specific foreign currency measure is the ten per cent capital charge on financial institutions' net foreign currency positions. The charge on the net foreign asset position is designed to address institutions' (two-way) foreign exchange risk. This risk increases the greater the imbalance between institutions' foreign liabilities and their foreign assets.

Operationally, therefore, the financial institutions are required to add to their capital the equivalent of ten per cent of the absolute difference between their foreign liabilities and foreign assets. More generally, the evaluation of financial institutions' credit risk is a key priority of the Central Bank. As such, the Bank reviews closely the capacity of institutions to manage all aspects of their loan portfolios.

Q: Does the Central Bank restrict local regulated institutions from extending USD loans to non-T&T entities?

A: The regulations related to lending cover, but are not specific to, foreign currency loans to non-Trinidad and Tobago entities. Such regulations include credit exposure limits (to any single entity) of: 25 per cent of the financial institution's capital base; and ten per cent to a connected party.

Legal issues

The first mention of the words Barita In vestments in a T&T newspaper was in the April 28, 2021, edition of the Express Business magazine. That initial story reported on the participation by FCIS in the Barita APO in September 2020.

First Citizens responded by sending the Trinidad Express a pre-action protocol letter, dated May 3, 2021.

MONEY TALKS: Founder of Cornerstone Financial Holdings Ltd Paul Simpson, left, with Cornerstone chairman Mark Myers and First Citizens CEO Karen Darbasie at a meeting with Jamaican Prime Minister Andrew Holness at his office in Kingston last month.