Jamaica Broilers Refinances Debt29 July 2009
JAMAICA - On 27 July, Jamaica Broilers Group Limited (JBG) signed off on an agreement with the Inter-American Investment Corporation (IIC) for a US$7 million loan to fund its operations and replace expensive bank debt.
Poultry, meat, animal feed and ethanol producer, Jamaica Broilers Group, is to pay down some of its expensive debt to local banks with a US$7 million (630 million Jamaican dollars; JMD) loan now in hand from the Inter-American Investment Corporation (IIC), following several months of negotiations.
Jamaica Gleaner reports that to secure the multilateral lending agency loan, which has been announced since May, the company has had to put up its profitable Port Esquivel, St Catherine-based JB Ethanol Limited, in which it has over the past two and a half years already poured about US$42 million or around JMD 3.8 billion.
At its financial year end on 2 May 2009, Jamaica Broilers was $4 billion in debt, of which $2.95 billion is due within a year.
Jamaica Broilers will be pulling down the IIC funds in two tranches, with the first US$5 million available immediately and the balance to be accessed by November this year.
"The first disbursement will replace more costly short-term loans resulting in an immediate savings to the company in the order of US$250,000 (JMD 22.5 million) per year," the company's vice-president of finance and energy operations, Ian Parsard, said at the signing of the IIC loan deal this week.
According to Jamaica Gleaner, Broilers will be using the other US$2 million to provide operating support – largely to buy grain for the group's poultry, feed, fish, beef-producing businesses, its ACE Supercentre farm stores; provide working capital for its sugar cane-based ethanol operation; as well to roll out a credit report system for the company's 180 contract farmers.
Repayment in 10 equal quarterly instalments at an interest rate of Libor plus 4.25 per cent is to be made over two and a half years and the loan is renewable for another 30 months, it was announced.
"The attainment of a direct borrowing relationship with the IIC is a big achievement for the company," the Jamaica Broilers finance chief noted at the signing on 27 July.
"Having cleared the comprehensive due diligence process of the IIC, investors can be confident in the governance procedures in existence at the company, the soundness of the current business model and plans to grow and strengthen the company in the immediate and longer term."
As part of the loan approval process, IIC representatives visited the St Catherine operations and conducted interviews with the company's bankers.
At January 2008, Jamaica Broilers had long-term debts of JMD 933 million but since then its debt stock has tripled to JMD 3 billion, largely connected to the development and expansion of its 60 million gallon per year capacity ethanol dehydration plant.
The upshot has been a heavy financing charge for the poultry and energy company, whose loan servicing costs grew by more than $100 million to $433 million at year end on 2 May 2009, erasing 30 per cent of operating profit.
The company still ended the year with a healthy 12 per cent growth in net profit to $828 million.
Having eliminated export fish last year, all business segments returned profits: poultry made $867.4 million, farm/feed supplies made $665.7 million while ethanol made $443.4 million. Poultry, however, was the only segment to decline year on year, returning $80 million less in operating profit.
In February, the company shuttered its ethanol operations for six weeks in the face of soft markets for its fuel-grade product and said it was concentrating on maintenance works, according to Jamaica Gleaner.
Ethanol still returned $42 million higher profits this year than the $321 million it made in 2008.
Jamaica Broilers and IIC officials are confident the loan will contribute to the sustainable financial performance of the company.
Steven Reed, the IIC's deputy general manager, has expressed satisfaction with the transaction and invited other Jamaican businesses to make use of the facility.
The 20-year-old IIC provides financing in the form of equity investments, loans, guarantees, and other instruments, as well as advisory services to private enterprises in Latin America and the Caribbean. According to information posted on the corporation's web site, in 2008, the IIC reached US$1.5 billion in assets and approved 64 transactions, channelling US$300.5 million to small and medium enterprises in the region.