Ja­maican fi­nan­cial pow­er­house, NCB Fi­nan­cial Group (NCBFG), has agreed to pledge all of the shares of its ma­jor­i­ty-owned sub­sidiary, West­moor­ings-based Guardian Hold­ings Ltd (GHL), as col­lat­er­al for its de­layed US$300 mil­lion bond.

The move, which is un­prece­dent­ed in Caribbean cor­po­rate his­to­ry, ex­pos­es GHL to ad­di­tion­al risks if NCBFG does not meet its debt oblig­a­tions. NCBFG has over US$250 mil­lion in debt oblig­a­tions ma­tur­ing this year. NCBFG owns 61.77 per cent of GHL’s or­di­nary shares.

To ad­dress the ma­tur­ing debt, NCBFG launched a se­nior un­se­cured bond that should have priced and closed in ear­ly June. How­ev­er, the of­fer was not priced, and in­vestors re­mained puz­zled on the si­lence by NCBFG.

NCBFG up­dat­ed the T&T Stock Ex­change on Mon­day where it re­vealed that the of­fer was now a se­nior se­cured bond and that an amend­ed and re­stat­ed of­fer­ing mem­o­ran­dum was re­leased. NCBFG ex­pects the of­fer to price and close short­ly.

“The notes will be se­cured by a first-pri­or­i­ty charge over the shares in Guardian Hold­ings Ltd, which is owned by NCBFG. There­fore, in the event of the notes’ de­fault, avail­able mech­a­nisms al­low the use of col­lat­er­al and the re­lat­ed pro­ceeds to re­pay the notes. As a re­sult, our rat­ing on the pro­posed notes re­mains at the same lev­el as the is­suer cred­it rat­ing, giv­en the notes’ se­nior­i­ty,” Fitch ex­plained.

The mem­o­ran­dum ex­plained that NCBFG would pledge all of its 143,326,379 shares held in GHL as col­lat­er­al for the bond. How­ev­er, 127,873,515 GHL shares are al­ready pledged for US$166.76 mil­lion worth of debt.

Con­tact­ed for com­ment, GHL chief ex­ec­u­tive Ian Chi­napoo said, “We can clar­i­fy that GHL shares were pre­vi­ous­ly pledged as col­lat­er­al to re­gion­al bond­hold­ers for debt, which is to be ful­ly re­paid by this (US$ 300 mil­lion) bond of­fer­ing. So, sub­stan­tial­ly this rep­re­sents no change for GHL.”

Chi­napoo con­firmed that the GHL debt that is be­ing paid off by some of the pro­ceeds of the NCBFG bond to­talled US$173.51 mil­lion.

“The US$173,513,383.40 of the net pro­ceeds from this of­fer­ing of the Notes will be held in the Es­crow Ac­count un­til the pre­pay­ment of each item of Des­ig­nat­ed Es­crow Debt no lat­er than the dates set forth in the Es­crow Re­lease Sched­ule de­scribed in ‘De­scrip­tion of the Notes—Es­crow of Pro­ceeds; Spe­cial Manda­to­ry Re­demp­tion’.”

GHL trad­ed at $16 on Wednes­day on the T&T Stock Ex­change. That val­ued NCBFG’s shares at $2.29 bil­lion or US$337.74 mil­lion.

Speak­ing in Oc­to­ber 2023, when she was Leader of the Op­po­si­tion, Prime Min­is­ter Kam­la Per­sad-Bisses­sar drew at­ten­tion to the in­ter­con­nect­ed­ness of NCBFG and GHL.

“There can be a cas­cad­ing fail­ure with­in our fi­nan­cial sys­tem due to the nu­mer­ous in­ter­con­nect­ing link­ages among the NCB Fi­nan­cial Group, Guardian Hold­ings Ltd (GHL), lo­cal banks and fi­nan­cial in­sti­tu­tions with­in our coun­try,” she said.

Guardian Life Ltd (GLL) pur­chased the in­sur­ance and an­nu­ity busi­ness of NCB In­sur­ance Agency and Fund Man­agers Ltd in Sep­tem­ber 2020 for J$4.90 bil­lion or US$30.38 mil­lion. GLL will now pur­chase the pen­sion fund man­age­ment port­fo­lio from NCB In­sur­ance Agency un­der a planned in­ter­nal re­or­gan­i­sa­tion.

The pre­lim­i­nary mem­o­ran­dum of­fer doc­u­ment for the US$300 mil­lion bond in­di­cat­ed that NCBFG is pur­su­ing var­i­ous strate­gic trans­ac­tions to gen­er­ate cash flow to re­duce the group’s debt. These po­ten­tial trans­ac­tions could po­ten­tial­ly raise J$24.8 bil­lion (US$154.90 mil­lion) in ag­gre­gate cash flows.

One such trans­ac­tion was the sale of Thoma Ex­ploitatie BV by Guardian Hold­ings Ltd (GHL) on Jan­u­ary 24 for J$20.5 bil­lion (US$128.05 mil­lion). NCBFG record­ed an af­ter-tax gain of J$15.1 bil­lion (US$97 mil­lion), of which J$9.4 bil­lion (US$60 mil­lion) was at­trib­ut­able to NCBFG share­hold­ers.