NCB Capital Markets may end up buying Trinidadian-based AIC Finance at a significant discount.
Just last year, AIC Finance issued shares representing 30 per cent of the company to its parent in exchange for TT$15 million, which is approximately the same as the price being offered for all the shares now.
What's more, the merchant bank's capital base stood at TT$34 million at the end of September 2012.
From AIC Finance's perspective, the owners of the merchant bank wanted the best sale price for the company, but also being the owner of NCB Capital Markets, they opted for seeing that the Jamaican company got a good deal and, more importantly, the Trinidadian business was placed in a stronger position.
"We lose a bit by selling cheap, but gain in the long term," said AIC Finance chairman Robert Almeida, who is also a director of National Commercial Bank.
Perhaps more importantly for NCB Capital Markets, the Trinidadian firm is no longer dogged by heavy expenses after substantial downsizing of staff and operations as well as a shift away from brokerage services over the last three years.
"The company is operating profitably," said Almeida.
AIC Finance accumulated TT$47 million in losses up to September 30, 2012, and it posted losses in three of the last four years, including TT$8.8 million last financial year.
But since 2009, the company cut staff from around 50 in 2009 to approximately 20 now, which resulted in a reduction in employee benefit from TT$8.6 million in 2009 to TT$2.4 million last financial year, which ended September 30.
It also downsized its office space, which led to reduction in the cost of rent from TT$1.2 million to TT$260,000.
At the same time, the company rid itself of about TT$25 million in debt over the last three years (non-depositors' liabilities fell from TT$30 million at the end of 2009 to TT$5.5 million last September).
"The company right-sized its balance sheet and reduced the cost of funds," said Almeida. "From this level we can start to build again."
A significant part of the loss in 2012 had to do with a TT$5.3 million impairment of a subsidiary -- AIC Securities.
Back in 2004, AIC Financial Group purchased a controlling stake in Trinidad and Tobago Stocks and Shares Limited (now called AIC Securities) and bought up additional shares until it eventually had 94 per cent of the stock brokerage.
In 2011, AIC Securities issued shares to other shareholders on two occasions, resulting in the dilution of AIC Finance's stake in the subsidiary to 43 per cent by November 2011. Consequently, the merchant bank took a hit to its bottom line in the form of an impairment.
Almeida said that AIC Finance's strategy had changed from being a broad-based conglomerate to a more focused non-bank financial institution; hence the company shifted away from stock brokerage services.
Now, it mostly deals with longer-term deposits and lending (not less than a year), investing its cash and offering fixed-income instruments.
As at September 30, 2012, AIC Finance had TT$49 million in cash, up from TT$38 million a year earlier, and financial assets of TT$38 million (up from TT$21 million), which makes up a part of the firm's TT$123 million in assets.
Importantly, the company reduced its debt by TT$25 million over the last three years, leaving it with TT$83 million in customer deposit liabilities and TT$5.5 million in other debt.