Investors encouraged to consider bonds

By: Jodi-kay Williams/Kalilah Reynolds Media

Manager of Wealth and Syndication at NCB Capital Markets, Sancia Thompson, is encouraging investors to consider bonds as a way of diversifying their portfolios. 

In an interview with Kalilah Reynolds Media, Thompson noted that interest has grown in recent years about investing in the stock market; however, she said that while bonds are much different from stocks, they are a relatively safe way to invest. 

NCB Financial Group is currently aiming to raise up to J$22 billion (US$145 million) through its latest bond offering, which has been extended to September 9. The bond is one of the largest debt raises in NCB’s history. 

‘‘Bonds sit on the other end of the spectrum. Stocks offer a higher level of risk. As you know, over the last year or two, you would have seen significant changes in the price of your stock profile. When you look at bonds, you don’t have that level of risk; the spikes and the dips, that doesn’t necessarily happen with bonds,’’ she said.

The new bond is being offered at 6 percent per annum, paid twice a year (March and September), for three years. The minimum investment is J$100,000 (US$660).  

According to Investopedia, a bond is a fixed income instrument that represents a loan made by an investor to a borrower. Stocks, on the other hand, represent part ownership in a company. 

Bonds guarantee investors a consistent interest rate, while stocks may or may not pay dividends in addition to gains when the stock price goes up (called capital appreciation).

Thompson noted, however, that because NCB Capital Markets is registered in Jamaica, the company is subjected to the country’s tax laws. This means that they are required to withhold 25 percent in taxes, which is paid over to the Government. 

When the bond matures in 2024, investors will have their initial investment repaid to them.

Risk factors

In the meantime, investors should also be aware of the possibility that an institution could default on its bond.  A recent example of this is Digicel, which offered investors only pennies on the dollar last year. 

According to Thompson, one of the key points investors should consider when deciding to participate in any offer, is the stability of the company they are investing in.  Noting that the NCB Financial Group occupies roughly 39 per cent of Jamaica’s financial market share, Thompson said NCB is a ‘‘household name.’’

‘‘When you talk about bonds, it is important that as investors, you actually look at the company in which you are investing,’’ she said.

She added that since NCB is a publicly traded company, it should offer investors additional security as they have access to all the bank’s documents, including its financials and management.

‘‘When you look at who leads the group; strong individuals that have proven themselves to be able to move NCB,’’ she said.

Thompson also noted that NCB was recently given an A+ credit rating by the Caribbean Information and Credit Rating Services (CariCRIS), signalling the company’s overall financial stability. 

Additionally, she explained that if an investor needs to exit the bond before the maturity date to recoup their initial investment, they will have to sell the bond at its current bond price.

‘‘When the bond is issued, it is usually issued at around par] face value of the bond] which is around $100. The secondary market is really based on market conditions, so the price could be higher, the price could be lower. But historically, what we’ve seen with bonds, especially NCB Financial Groups bonds, is that they tend to hold their prices,” noted Thompson. 

NCB is seeking to raise at least J$15 billion (US$99 million), which may be upsized to J$22 billion (US$145 million).  The funds will be used to refinance some of the bank’s existing debts as well as reprofile its liabilities.

Investors who already have an NCB brokerage account can participate by logging on to the GoIPO app and signing up for the offer. NCB has also partnered with several brokerage firms as selling agents. These are: Stocks and Securities Limited, JMMB, Victoria Mutual Wealth Management, PROVEN Wealth, JN Fund Managers and Scotia Investments.

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