Jamaica Gleaner / VM Investments Limited (VMIL) plans to offer $1 billion in lending to small and medium-sized enterprises (SMEs) in a bid to grow its loans portfolio, a venture that will be partially financed from funds raised in its initial public offering (IPO) planned for later this month.
“We are raising funds aimed at providing capital for small and medium enterprises. We would provide capital to these entities in either the form of debt or equity,” said Devon Barrett, chief executive officer (CEO) of VM Wealth, in an interview with Wednesday Business .
VMIL views the micro-lending market as a $20-billion-a-year industry with space for innovative players. Loans to the SME sector are usually repaid over the short term and are unsecured.
“We are not late to the market, and we hear complaints from persons in the SME sector every day. So we will use [some of] the money raised in the initial public offering to offer more creative ways to finance the SME sector,” stated Barrett. “We think that the current lenders are not providing creative solutions to the public.”
VM Investments aims to raise $690 million in its IPO in an effort to list on the main market of the Jamaica Stock Exchange (JSE). The IPO opens on December 11 and closes on December 18.
The company plans to use the proceeds for working capital and to take advantage of new business opportunities, according to its prospectus. VMIL plans to list the shares at $2.45 and invite the public to purchase up to 300,005,000 ordinary shares.
The listing price represents roughly nine times its historic earnings, which compares with 17 times for companies in the financial sector on the JSE main market. Essentially, offering the shares to the public is at a discount.
“We want to encourage financial inclusion,” explained Barrett, adding that the future multiple drops to eight times earnings when asked about the pricing. “We want to create opportunities for team members and to offer the stock at a fair and reasonable price so persons will benefit from the upside.”
Victoria Mutual Building Society (VMBS) holds 100 per cent of the 1.2 billion units. After the IPO, shares will expand to 1.5 billion, with VMBS holding 80 per cent and the public holding the remaining 20 per cent. Five of that 20 per cent will be offered to the general public, another five per cent to employees, and 10 per cent to VMBS group members.
VMIL has been a member of the JSE since 1994, operating as a licensed securities dealer. Since 2011, VM Wealth has diversified its revenue streams away from fixed income and securities trading to becoming active in the asset management and capital market space, with a range of products and services. This has resulted in VMIL now earning approximately 70 per cent of its revenue from non-interest income sources.
“These shares represent 3,005,000 opportunities to be part of our mission to do more than create wealth,” according to the prospectus for the IPO. “Investors in VMIL will play a vital role in helping local companies realise their growth potential. You become a positive economic catalyst for Jamaica and, in so doing, you also gain from this growth as it bolsters the value of the VMIL stock in your portfolio,” it added.
The company earned $273 million in net profit on revenues of $558 million for the nine-months ending September 2017. That equated to a 14 per cent dip in net profit year on year.
VMIL balance sheet totals $16.3 billion, with total equity standing at $1.62 billion, up from $1.36 billion a year earlier.
RETURN ON EQUITY
The company’s return on equity and return on assets improved from 14.3 per cent and 1.29 per cent in 2012 to 19.64 per cent and 1.95 per cent in 2016, respectively, over the five-year period. VMIL said the return on equity had a low of 14.32 per cent in 2012 and a high of 22.80 per cent in 2015.
“As part of the VM group’s strategic goal of being a strong integrated financial group, in 2017, the recapitalisation of VMIL was initiated as a vehicle to facilitate corporate lending and investing to support well-run Jamaican businesses,” stated the prospectus.
“To date, VMIL has successfully raised J$500 million of debt by way of a private placement,” it said. “We are now embarking on another round of fundraising through this offer to widen revenue streams and tap into existing opportunities in the corporate lending landscape. VMIL will offer a range of products, including margin loans, insurance premium financing, lease financing, underwriting services and secured corporate loans, managed by the financial expertise of the VM Wealth team,” added the prospectus.