Proven Group Limited is chasing new debt capital at around the same rate it did a year ago, notwithstanding the pressures that inflation and rate hikes have been putting on bond yields.
The company placed a two-year bond on the market on January 10, seeking up to US$10 million, which is equivalent to $1.5 billion, to be utilised as working capital and for debt refinancing.
The US dollar-indexed bond will remain open for subscription for two months until March 10. It will pay interest of 5.25 per cent until maturity in January 2025, but serviced in Jamaican currency.
Proven Group CEO Christopher Williams described the offer as an uneventful refinancing exercise.
“It is a debt rollover with the same terms. Nothing exciting,” he said.
The Proven CEO, however, punted the question to his deputy, Johann Heaven, when asked the company’s thinking behind the pricing of the bond within the context of rising interest rates.
“Given the credit worthiness, diversity, relatively low risk profile and overall position of Proven in the market, we are confident in our ability to successfully raise the US$10 million at a rate of 5.25 per cent,” Deputy CEO Heaven replied.
But holding the coupon rate steady also offers insight into the thinking of Proven on the future movement of interest rates and investor appetite for returns, even though Jamaica’s and other central banks worldwide are indicating that they aren’t done yet with hiking rates to bring inflation back into target range.
Last year, Proven raised US$16 million from a two-year bond, at 5.25 per cent interest, while raising an additional US$4 million at 5.35 per cent. The larger bond will mature in March 2024 and the other in March 2025. At the time, it was one of the first US dollar corporate bond offers since the relaxation of regulatory measures to safeguard the Jamaican currency. The measure originally halted US dollar debt raises by financial firms as a means of tamping down on the demand for American currency in order to stabilise the foreign exchange market.
The relaxation of the measure allowed firms to issue US-indexed bonds but pay interest in local currency, thereby keeping pressure off the forex rate.
Prior to last year’s bond offer by Proven, the Bank of Jamaica had raised its key signal rate to 4.0 per cent. But now, the central bank rate is at 7.0 per cent, and it’s due to make another decision on February 20. In the US financial system, the upper end of the Fed rate was at 0.25 per cent a year ago, but now its currently at 4.75 per cent following last week’s upward adjustment.
The rate hikes in Jamaica and foreign markets have resulted in investors demanding higher returns, amid high inflation.
Still, inflation, which factors into the computation of real returns on financial investments, has been trending down over the past year: In Jamaica’s case, from over 11 per cent to 9.4 per cent; and for the United States, from eight per cent to 6.5 per cent.
The current bond was arranged by Proven Wealth Limited on behalf of the issuer, Proven Group, its parent holding company. The proceeds are to be utilised for “working capital and funding of capital projects across the Proven Group”, the term sheet noted. It will also refinance existing debt.
The offer is confined to accredited investors, that is, high net worth individuals and institutional investors. Bond issuers targeting that discrete grouping are not required to produce a prospectus for the debt raise.
Proven Group holds investments in various companies dealing in wealth management, banking, microlending, manufacturing, and real estate ventures across the Caribbean. Its total assets at last disclosure were hovering at US$1 billion while its net value stood at US$123 million.
The group is in the process of setting up a wealth management arm in Barbados.
steven.jackson@gleanerjm.com
