(Jamaica Observer Article, David Rose: Kingston, Jamaica)
Sygnus Credit Investments Limited (SCI) will be turning deeper focus on impact investing going forward as it looks to have a greater social impact in the region while growing its private credit portfolio.
Investopedia defines impact investing as an investment strategy that seeks to generate financial returns while also creating a positive social or environmental impact. There are currently two impact investing funds which exist under the SCI platform based in Puerto Rico. SCI and its associated subsidiaries are involved in private credit, which simply means lending to private companies under different structures than that of a traditional bank and generating higher yields for investors.
Sygnus Credit Chairman Linval Freeman addressing the audience. (Jamaica Observer Photo)
Acrecent Financial Corporation Limited, in which SCI has a 95 per cent interest in the Sygnus Credit Investments Puerto Rico Fund LLC, had a record US$90 million in private credit originations in 2023 with the deployed funds having significant impact in Puerto Rico. These funds assisted 66 overlooked businesses, allow health-care firms to purchase state of the art medical equipment/software and benefit several rural and urban communities across the hospitality sector.
For 2024, SCI is planning to sponsor a new special focus fund in Puerto Rico and roll out its impact investment strategy. This is in conjunction with the company funding normal deals which have a positive impact in their relevant regions across the English-speaking Caribbean.
“One of the strategies that SCI is going to employ is to carve out or focus a decent size of its portfolio on aligning itself with impact themes. Right now, we’re doing it, but it’s kind of ad hoc and we want to become more surgical. We’ll actually report that to shareholders in terms of this is what we’re doing on the impact fund, this is how much revenues we’re generating, this is how we’re affecting climate change and ESG goals. This is something you’ll hear more about in the short to medium term,” said Jason Morris, chief investment officer and co-founder of Sygnus Capital Limited, at SCI’s hybrid sixth annual general meeting held on January 17 at the AC Hotel.
Sygnus Capital manages SCI’s operations as its investment manager.
Sygnus Credit purchased its interest in Acrecent in February 2022 with the Puerto Rican investment having a record US$65.1 million in new originations during 2023, the highest in its 20-year history. While its accounting representation on the income statement doesn’t show up like other typical acquisitions, SCI still benefits from the scale and scope of Acrecent to its wider regional plans.
SCI was able to make Acrecent a pure private credit company with no employees in July 2023 and will be moving its financial year-end from December to June this year. However, SCI’s first quarter saw fair value losses from the Puerto Rican investment dragging income by a quarter from US$2.57 million to US$1.90 million.
“We’re not worried about the Puerto Rican asset. It’s doing very good, in terms of deploying a lot of capital, and we expect this to be a major driver of growth for SCI over the medium to long term,” Morris added in his explanation to shareholders.
SCI began operations in July 2017 with a US$16-million private placement and has since raised US$100 million through the Jamaica Stock Exchange (JSE), with its latest fund-raising round occurring in December with a US$50.25-million (J$7.78-billion) cumulative redeemable preference share offer. Its balance sheet at the end of September would have been US$161.97 million with the fair value of its investments worth US$152.57 million.
This led it to generate record interest income of US$4 million with the other form of income generating US$62,223 from fee income. Morris has declared that in order to pay the targeted five per cent dividend yield to shareholders, the company wants to generate 20 per cent of its revenue from fee income. Fee income only made up 2.70 per cent of 2023’s US$14.46 million in total income.
“We can’t underwrite a US$50-million transaction and then sell down US$40 million to other co-investors. Now that we have US$200 million thereabouts and we’re looking to get US$300 million very fast. What that does is that it allows us to bring in a new fee income line. If I can underwrite two big transactions in a year, and I get one per cent underwriting fee, and then I sell that down, I can easily make US$2 million doing that. The big thing to focus on is, the bigger SCI gets, the more economics it can generate from being a private credit fund,” the co-founder explained.
The company is still looking to tap into a US$100-million credit line which is still being negotiated. However, it is looking to close two major deals before the financial year ends on June 30 with the largest demand coming to fund acquisitions.
“SCI is seeing massive demand for acquisition financing. We have seen a lot of Jamaican firms doing a lot of acquisitions across the Caribbean region, and because we have flexible capital which is different from the black box standard bank financing, people are coming to us to help fund those acquisitions. It is a nice little environment to be in given how high interest rates are and how flexible our capital is, so we can fund a lot of these,” Morris highlighted.
SCI’s Jamaican dollar (JMD) shares traded down to J$10.56 on Thursday with its United States dollar (USD) shares trading closing at US$0.0799, including a 52-week low of US$0.0770. This is below its book value of US$0.1172 as of September, below the IPO price of $13.72/US$0.11 and the APO price of $16.30/US$0.14. SCI’s three new classes of cumulative redeemable preference shares will list on the JSE January 19.
When asked about the company considering a stock split, Morris rejected the idea of attempting to make the nominal JMD share price cheaper to create small term gains. He instead pointed to the company’s growing pie and the share buyback which goes up to June 2026 and can be extended by the board if not fully deployed by then.
“My position is that I’m not trying to game the stock. At the end of the day, we have a share buyback of up to US$9 million — which is about J$1.5 billion — that we can [use to] buy back the shares. I keep telling people the stock is cheap and is undervalued. Any metric you want to use, it’s undervalued and it’s cheap,” Morris closed.
