Barita Investments

Jamaica’s Barita Investments Limited wants to become a major financial player in the region and is prepared to do so by leveraging strategic relationships similar to the one it has been building with T&T’s indigenous bank, First Citizens.

In response to questions from the Business Guardian (BG) the company said this strategy is in keeping with what it disclosed in its prospectus that accompanied two Additional Public Offerings, done in 2020 and 2021.

“Barita intends to further expand its reach into the region. In the initial instance this strategy is intended to be focused on fully leveraging mutually beneficial partnerships with established players across the region. The company is open to pursuing opportunities that would see us establishing or acquiring subsidiaries domiciled in other regional territories subject to alignment of these opportunities with our risk appetite and long-term strategic objectives,” Barita told the BG.

It added, “We are of the firm belief that close regional collaborations across the countries of the Caribbean region, both from the private sector via strategic partnerships among businesses and the public sector via effective multi-lateral cooperation and points of economic integration by governments of the region in accordance with the raison d’être of the Caribbean Single Market & Economy (CSME). Strategic alliances especially in financial services between private sector firms in Jamaica and Trinidad & Tobago, the two largest economies of the English-speaking Caribbean, are particularly pivotal towards the full leveraging of the relative competitive advantages and factors of production of these countries with the ultimate objective being achieving much higher levels of sustainable GDP growth for our Caribbean people.”

One of the things that have attracted First Citizens, through its wholly owned subsidiary First Citizens Investments Services (FCIS) to Barita, is the Jamaican company’s access to a banking license.

It is no secret that First Citizens wants to expand its operations throughout the Caribbean as it tries to grow outside of T&T.

Barita was asked by the BG the following question, “Can Barita say if it is interested in having a bank in Jamaica or partnering with First Citizens, re a banking license, in Jamaica?”

It admitted to being open to what it called partnerships but did not specifically respond to the First Citizens question as its strategic partner.

It said, “Cornerstone United Holdings Jamaica Ltd (CUHJ) owns a merchant bank in Jamaica. Cornerstone Financial Holdings Ltd (CFHL), an affiliate of CUHJ, is the parent company of Barita Investments Ltd. CUHJ and CFHL, which have the same shareholders and shareholdings, are looking to organise themselves into a financial holding group subject to approval by our regulators.

Given Cornerstone’s ultimate objective which is to positively impact the lives of the average Jamaican and Caribbean national, it is our intention to fully leverage the scope of our banking license in furtherance of achieving that objective. We are intending to build our capabilities in banking and financial services in general over the long term which includes an openness to value-added partnerships.”

Barita Investments Ltd is a major player in the Jamaica Financial Sector. It has seen major growth since being acquired by its majority shareholders Cornerstone Investments.

The level of growth and the high payments of dividends have raised eyebrows but the company has said its astronomical success is based on sound financial management and aggressive growth policies and that its relationship with First Citizens is above board.

Recently, Jason Chambers, the Chief Investment Officer of Cornerstone and Ramon Small-Ferguson, the Executive Vice President, Asset Management & Research, Barita Investments Ltd spoke with the Business Guardian as they tried to explain many of the issues that have been raised in the public domain about Barita, Cornerstone and First Citizens.

Chambers explained that Barita’s interest in becoming a regional business is in keeping with Cornerstone’s regional ambitions.

Chambers said: “The objective of Cornerstone is to bring full service financial solutions to the people of the Caribbean… all the way to the grassroots. In Jamaica, Barita is widely known as the ‘people’s broker’. To effectively serve the markets outside of Jamaica we need to have strong partners on the ground in different areas of the region. Trinidad & Jamaica are the largest English-speaking countries in the region and we believe both countries need to collaborate more effectively looking at what their respective endowments are in order pursue higher sustainable economic growth and better achieve the vision of a living and breathing Caribbean Single Market & Economy (“CSME”).

To put the issue in to perspective Cornerstone in 2017 took controlling interest of Barita Investments Ltd. At the time Barita was a relatively small player in the Jamaica financial markets.

According to Barita part of its financial success over the last two year is its ability to enter new business lines and to deepen its presence in the Jamaican financial services.

Small-Ferguson told the BG: “Post-acquisition by Cornerstone, Barita has established new business lines such as investment banking (corporate finance) which has earned more than US$10 million in revenue between Dec 2018 and June 2020. Our Cambio/Foreign Exchange Business has moved from a market position of 6th in 2018 to 3rd in 2020/2021. Our Equity Brokerage business has also moved from 6th in 2018 to 2nd in 2020/21. We have grown our headcount focused on sales and service by more than 10 times (x) during the post-acquisition period which has fuelled customer acquisition.”

But what of the several APOs and other capital raises we have seen the company undertake. Is this an attempt to increase profits and get the money out through dividend payments?

Not so explained Chambers and he posited that it is about putting capital to work.

“One of the other things we are doing differently is that we are not just investing in Government securities but we are going into private equity, private credit, and real estate with the objective of putting our capital to work in the productive sectors of the economy to spur economic growth. A lot of these investments require long term patient capital which is why Barita has been raising equity,” Chambers explained.

He also pointed out that due diligence done on Barita can bear out his statements on the raising of the capital.

Chambers told the BG, “Over Barita’s recent capital raising cycle which has spanned the past three years, by virtue of its two Rights Issues and two Additional Public Offerings (APOs) several independent brokerage houses in Jamaica through repeated due diligence exercises on the company have awarded the stock a buy rating. These firms include: a. Scotia Investments Jamaica Limited b. JMMB Investments Limited c. JN Fund Managers Limited d. VM Wealth Management Limited e. Proven Wealth Limited f. Sagicor Investments Limited g. GK Capital. These firms have estimated Barita’s fair value to be as high as J$117.00 per share.”

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.

Chambers had told BG, “ 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.”

But there remains the question of the relationship among Barita, Cornerstone, its principals, their other private companies and other relationships that could become problematic. Chambers denied that there is any conflict of interest happening. He insisted that Barita was Independent of Cornerstone.

He said, “While Cornerstone Financial Holdings Limited is the 75% parent of Barita Investments Limited the majority of the Barita’s Board of Directors is comprised of Independent Non-Executive Directors; all of whom are prominent and long-standing members of the business community in Jamaica. The key Board Committees – Audit & Risk Committee, and the Corporate Governance Committee – are chaired by respected and well-regarded professionals in the Jamaican and Caribbean community who are independent of both Barita and Cornerstone. The company is externally audited by the global accounting firm BDO. BDO is a global accounting firm with over US$10 Billion in Revenue, practising in 167 countries with 91,000 employees. BDO is the fifth largest accounting firm in the world. The appointed Internal Auditor is Ernst and Young and KPMG acts as an Advisor for the Policies & Procedures Development & Review.”

For Small-Ferguson brand awareness has also been a crucial strategy as the company tried to become a household name in Jamaica.

“During the post-acquisition period, Barita’s focus on brand awareness and customer acquisition culminated in it being named the top brand in 2020. “ Small-Ferguson told the BG.