Insurance Corporation of Barbados’ (ICBL) stake in a Canadian company has been diluted after additional shares were issued, prompting economist Jeremy Stephen to warn that the development could have implications for ICBL’s policyholders and shareholders.
The formerly state-owned industry giant’s majority owner has filed an “early warning report” after its joint shareholding with ICBL in Canadian company AmeriTrust Financial Technologies Inc. fell below the 10 per cent threshold of the firm’s issued and outstanding common shares.
ICBL owner JPK Capital Holdings (Barbados) Inc., owned by ICBL chairman Joe Poulin, quickly pointed out that the development was not the result of any acquisition or sale of securities by JPK or ICBL.
JPK said that, before the development, it owned, in aggregate, 56.8 million common shares and 31.5 million common share purchase warrants. Each warrant entitled the holder to acquire one common share at an exercise price of 40 cents until June 2027.
It said this represented about 8.37 per cent of the issued and outstanding common shares on a non-diluted basis and approximately 12.44 per cent on a partially diluted basis, assuming exercise of the warrants only.
Stephen explained what the dilution could mean for ICBL and its policyholders.
“AmeriTrust issued some extra shares; and what that meant was the joint holdings went below 10 per cent. What that typically means [is] that if they now own less, the value that they owned of the total company is less. So, dilution means that the material wealth of what you invested was reduced.”
The economist said he was not in a position to calculate what the dilution would translate to in dollars and cents, but was certain that “the value of that joint investment has been reduced on a per-earnings basis, but they own the same number of shares that they had before… just that more shares were issued. So, the company’s value did not increase by the issuance of shares. It’s like taking up a piece of the pie and dividing it even further; moving from quarters to eighths, for example. So, that would mean each piece is worth less than it did before.”
He further clarified: “[This] means that the earnings per share could be less in the future because of this issuance, and it would mean that dividends per share and earnings per share from this investment, which they are significant shareholders in, could be less going forward. It could affect ICBL down the line. For instance, when there is a call on a pension plan or other plan – and given what they said recently about not being a counterparty to some types of insurance policies, this loss is a bit interesting, depending [on] what that 10 per cent was worth.”
But Stephen cautioned: “I have not done the research [on] what that 10 per cent that they had was worth and what their reduced stake in the company now is truly worth. But it would be worth obviously less. It will reduce the ability for them to use cash flow coming in from this investment through earnings and dividends, dividends primarily, or selling stock in the future. It will affect its ability to extract cash from it in order to fund its liabilities to policyholders.”
He also noted that ICBL and its owner said they would no longer be required to file early warning reports in relation to subsequent acquisitions or dispositions of AmeriTrust securities.
As the economist explained: “They now become more of a minority shareholder…so because they jointly own less than 10 per cent of the company, they don’t have to disclose early and upfront if they intend to divest from this investment in any way, or intend to purchase any more, just because of the dilution. So, because they own less and dropped below the 10 per cent benchmark, they don’t have to announce their intention to make moves in the capital market with respect to the company’s shares.”
Earlier this year, ICBL announced its decision to discontinue writing new individual life and individual health insurance business.
ICBL chief executive Golbourne Alleyne and chief financial officer and president of international operations Richard Boddy have not responded to Barbados TODAY’s repeated attempts to seek comment.
(EJ)
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