Barita Investments Limited, a major player in the Jamaica Financial Sector and its majority owners Cornerstone Investments have denied that they have been manipulating the Jamaica stock exchange, that their astronomical growth is anything but sound financial management and aggressive growth policies and that its relationship with First Citizens is above board.
On Monday Jason Chambers the Chief Investment Officer of Cornerstone and Ramon Small-Ferguson the Executive Vice President, Asset Management & Research, Barita Investments Limited sat down for just over an hour and spoke with the Business Guardian as they tried to clear the air on all of the concerns that have been raised in the Parliament and first brought to the public attention by Express Business Newspaper.
To put the issue in to perspective Cornerstone in 2017 took controlling interest of Barita Investments Limited. At the time Barita was a relatively small player in the Jamaica financial markets.
However since the take over its stock price has soared, its profits have also increased and the company has paid handsome dividends. First Citizens, through its subsidiary First Citizens Investments Services has also bought over 6 percent of the company, has loaned Cornerstone US $25 million and has seen major capital gains. This has led to questions about whether this is too good to be true and if there is more happening that is not being revealed to the market. What is also a challenge is that Cornerstone which owns a 75 percent stake in Barita is not a publicly traded company and not subject to some of the rigours of Barita.
To the question of who are the real owners of Cornerstone, Chambers told BG that the owners are all highly respected in Jamaica and the region and he named each director and the businesses they were involved in, from the owners of a major restaurant chain, to medicine, to the importation of vehicles. The Business Guardian has crossed checked the owners and is satisfied they have all been experienced businessmen and professional who are well known n Jamaica.
Chambers said if any of Cornerstone’s Directors were shady characters it would not fly since they have had to go through significant vetting from Jamaica’s Central Bank in order to be Directors of the financial institution.
“These shareholders would have gone through an extreme vetting process by the Bank of Jamaica to establish their fit and proper status. And so these persons are all legitimate, well respected, business people in Jamaica and the Caribbean and would have had due diligence done on them by the regulators.” Chambers insisted.
Chambers was asked if the way in which Barita was conducting business was equivalent to a scheme as has been suggested by Mark, he dismissed the suggestion saying while neither Cornerstone nor Barita wished to engage in a war of word with Mark they wanted to put the facts on the table and let the people of T&T decide.
“The facts are overwhelmingly contrary to the unfortunate statements made, our reaction was that we were really anxious to get the facts out there. We do not need to deal with a war of words or anything of the sorts. We feel it is important to just put the facts out there to any reasonable observer or listener. It is clear we believe to anybody who is reasonable thinking that there is absolutely no merit to those unfortunate comments.”
He said the reasons are clear, Barita Investments is one of the oldest brokerage firms in Jamaica, it is also the largest securities dealer in Jamaica by shareholder’s equity, it has US $2 billion in assets under management, for the 9 months ended June, Barita made US $6M in net operating revenue and said these are all compelling figures that cannot be doubted.
“It is important that the people of TT understand that Barita holds four significant licenses and as such it is regulated by three major financial regulatory bodies.” Chambers told BG.
He added that Barita is the third largest Cambio in Jamaica trading foreign exchange, and in that regard it is also license by the Bank of Jamaica. It is also the second largest stock broker in Jamaica in terms of market value traded, for the last two years . It is also one of the top listed companies in terms of market capitalisation and also regulated by the Jamaica Stock Exchange.
Chambers noted that Cornerstone and Barita have in combined assets over US $800 M and shareholders equity of over US $500 M.
But what has led to this major rise in profits and 5 percent divined payments? Is this sustainable and has First Citizens been fooled into a situation where there seem to be windfall profits and capital gains in what could only be a bubble?
Small-Ferguson insisted that the fundamentals are there for sustainable growth and that a close look at Barita’s operations and performance easily answers the naysayers.
Barita’s Executive Vice President, Asset Management & Research said the rise of the share prices of Barita can be attributed to a few things.
Post the acquisition of Barita in 2018 it produced what was then a record profit of US $2M. A year after the acquisition it rose to US $13 M and subsequent it rose to over US $17 M. Year to date for 9 months net profits gone up to US25 M. Earnings per share for 9 month this financial year is $2.38 so almost 4 times what it was when Barita was taken over and Barita is more than 5 times as profitable compared to pre acquisition.
“There are two things that generally drive returns in the stock market, earnings growth which I have clearly just evidenced that Barita’s earning have been growing significantly and future expectations for growth which is generally expressed in the multiple that investors are prepared to pay for the stock.” Small-Ferguson said.
He pointed out that post Cornerstone’s acquisition it has raised significant capital, and brought in human capital in terms of hiring the best talent to grow the business. Barita has also focused heavily on building the requisite partnerships to be successful. It has o embarked on an acquisition strategy to drive diversification.Part of the strategy also included raising the brand profile of Barita.
Small Ferguson told BG; “All of that sentiment has naturally contributed to the rise in our share price, we have moved from a shareholding that was just over 1000 shareholders and our last public offering of September this year attracted 3000 individual shareholders. So our shareholding has also widened in terms of the different classes of shareholders.”
Asked if Cornerstone was not essentially borrowing money and investing in Barita, bumping up the profits and paying itself back huge dividends? Barita came back to BG with the following, “Dividends Paid 2018-2021: In the ~3 years post the acquisition of Barita by Cornerstone Barita has declared and paid ~J$7.2 billion in dividends against ~J$8.5 billion in Net Profits (with Q4 2021 profits not yet being included) which is a ~85% Dividend Payout Ratio. Over the same period, Barita has raised J$34.5 billion in equity capital, 4.8X the dividends paid out over the period.
Return on Cornerstone’s investment in Barita to Date: Cornerstone Financial Holdings Limited has invested over US$170 million in Barita post its acquisition of the company in August 2018, demonstrating its firm and unwavering commitment to the growth of Barita Investments Limited. The shareholders of Cornerstone coupled with regional and local commercial and investment banking partners have since inception supported the growth of the business and by extension funded Cornerstone with over US$203 million. This is comprised of:US$97 million in equity funding by the shareholders of Cornerstone;
US$106 million in debt funding by the bankers and other investors of Cornerstone; and the shareholders have funded their investment in Barita from personal wealth accumulated from their respective businesses, the operations of which would have long pre-dated Cornerstone’s establishment. The foregoing has been supplemented by capital raises successfully completed at the Cornerstone shareholder level. Over the 3 years to date, Cornerstone has made a return of 3.4X on its investment in Barita (from a capital gain perspective) and not the 20 times quoted publicly.”
Small-Ferguson was asked about sale of the Proven shares which was then repurchased in block 13 minutes later that looked like an attempt to manipulate the market. He insisted that while they do not comment specifically on trades it is possible that someone may have moved their shares from one account to another which is perfectly legitimate and normal.
Neither Small-Ferguson nor Chambers were prepared to speak on the loan Cornerstone got from First Citizens except to say they have dealing with major banks in the USA and Canada and not just First Citizens.
They also talked about the need in their view to create wealth in the region for the people of the Caribbean and they are about value generation including looking for opportunities to get into the T&T market.
For them the relationship with First Citizens is only going to get stronger and deeper.