BOJ and FSC briefed on Sagicor, Cornerstone share tussle
Published:Wednesday | December 22, 2021 | 12:12 AMHuntley Medley/Associate Business Editor
Financial regulators Bank of Jamaica, BOJ, and the Financial Services Commission, FSC, have been brought into the loop on the emerging legal wrangle involving Cornerstone United Holding Jamaica Limited, CUHJL, and brokerage Sagicor Investments Jamaica Limited, SIJL.
CUHJL is the Jamaican parent of Cornerstone Financial Holdings Limited, CFHL, which is registered in Barbados.
Sagicor Investments, a shareholder in CFHL, this week alerted the media to legal action it initiated in Barbados against the board of CFHL over its disquiet about the disposal and allotment of shares in the company.
In a letter dated December 17 to BOJ Governor Richard Byles, a copy of which was seen by the Financial Gleaner, CUHJL Chairman Mark Myers said that in light of the impending submission of a financial holding company, or FHC, submission to the central bank for the reorganisation of the Cornerstone financial group, he thought it prudent to make a full disclosure to the BOJ about the reports of possible legal action against the group and/or its entities by Sagicor Investments, and to provide detailed information surrounding that and related matters.
Cornerstone operates Cornerstone Merchant Bank, which is supervised by the BOJ, and is required by banking legislation to reorganise its group structure in line with current FHC regulations under the Banking Services Act. Cornerstone is also the majority shareholder in Barita Investments Limited, which is regulated by the FSC.
The letter to Byles was also copied to FSC Executive Director Everton McFarlane and several divisional heads and officers with responsibility for prudential supervision at the BOJ and the FSC.
LEGAL ACTION
Myers, in his letter to the Jamaican financial regulators, said the proposed legal action is a fulfilment of repeated threats by Sagicor Investments to go to court unless Cornerstone agrees to buy its own shares being held by SIJL. Over the past several months, he said, SIJL has indicated a desire to divest itself of its shares in Cornerstone.
“Cornerstone has no interest in purchasing its own shares and has instead indicated to SIJL that it would be prepared to assist SIJL in identifying a satisfactory buyer for the said shares,” Myers told the BOJ.
The Cornerstone chairman also has expressed the view that the possible sale of shares and the current legal wrangle will not adversely affect the Cornerstone entities or the planned financial holding company’s reorganisation.
Cornerstone officials declined to discuss details of the correspondence to the BOJ, but said that while Cornerstone was being proactive in its communication with the financial regulators on the reported lawsuit, as it has been on other matters pertaining to the group, no legal documents had so far been served on CFHL or any of its directors.
“We have treated Sagicor fairly and equally, relative to the rest of our shareholding group, which is consistent with our ethos in Cornerstone, which is to engender an operating environment of transparency and adherence to applicable laws and regulations,” Myers said in written response to a request for comment.
Chairman of Sagicor Investments and President & CEO of its parent Sagicor Group Jamaica, Christopher Zacca, while confirming the legal action, declined to comment on the details of the case, referring the Financial Gleaner to Sagicor Investments’ Barbados-based attorney Nicholas A. Jackman of the law firm Chancery Advocates.
Jackman confirmed by email that the suit was filed with the registry of the Supreme Court of Barbados on Monday, December 20, and that the court documents and pleadings would have been served on CFHL’s Barbados-based attorneys Lex Caribbean on Tuesday. No date has yet been set for the court to hear the matter, Jackman said.
Cornerstone said in a media statement and in its letter to the BOJ that legal advice it has received from its lawyers Garth Patterson, QC, of Lex Caribbean and Michael Hylton, QC, of Jamaican law firm Hylton Powell, indicates that the company will be able to successfully defend itself against Sagicor Investments’ legal challenge.
Sagicor Investments is seeking an injunction blocking CFHL from issuing shares arising from an August 2021 rights issue, and compensation in the amount of more than US$4 million for what it alleges is the company’s sale of shares to other shareholders participating in a previous rights issue in July 2020 at a price that Sagicor Investments contends is below the market value of the shares.
Sagicor Investments also contends that shares it deems as being worth US$6 per share were sold to other Cornerstone shareholders for less than one US cent per share. The company said in a media release that it did not participate in the 2020 rights issues and objects to the alleged sale of shares in the August 2021 issue only to shareholders who participated in the 2020 capital raise.
The brokerage is also asking the court to compel CFHL to purchase the Cornerstone shares it currently holds. It is understood that Sagicor owns about 2.2 million Cornerstone shares.
“The assertions being made by SIJL are totally baseless,” said Myers.
In a media statement responding to Sagicor Investments’ public announcement of its intended legal action, Cornerstone disclosed information it had provided to the BOJ, saying in 2018 Sagicor Investments had been granted a shareholding of 4.5 per in CUHJL and by virtue of a “mirror” arrangement, the same percentage stake in CFHL, for its provision of arranger services to Cornerstone and its affiliates. This related specifically to financing for CFHL’s acquisition of a 75 per cent majority stake in Barita.
According to Cornerstone, Sagicor Investments’ stake in CUHJL and CFHL has since fallen to 2.77 per cent as a result of its non-participation in the equity raise in 2020 and having objected to the 2021 rights issue.
“SIJL, as a fully informed shareholder, opted against accepting Cornerstone’s invitation to participate in the capital raise and must accept the consequences of its decision. Sagicor was fully aware of the capital raises being undertaken in Cornerstone, and the records will reflect that they fully understood and acknowledged the underlying mechanics of the capital raises,” Myers told the Financial Gleaner.
Myers contends that Sagicor Investments was treated “more than fairly” in having been granted shares in Cornerstone for what he described as “nominal consideration” and having benefited from a lucrative business arrangement between June 2018 and September 2019, when Sagicor Investments allegedly earned more than US$3.5 million in fees from a series of fundraising transactions with Cornerstone and its affiliates.
“Having put nothing down just three years ago, Sagicor is now offering the shares it holds in Cornerstone for US$12.5 million,” Myers said.
In its prepared statement, Cornerstone estimated the aggregate value of fundraising fees, dividend income, and the value of the Sagicor shareholding at approximately US$17 million.