Hey guys, so by now you’ve heard about IPOs again and again right? You’ve heard about the massive returns they can offer and the potential they represent for long-term wealth.
Well there’s another one here, it’s from a company named Sygnus Credit Investments. Now it’s very easy to get caught up in the technicalities of a listing like this one, so let me try to make things simpler by giving a quick overview about Sygnus for those looking for a little help understanding the 119 page prospectus.
Who is Sygnus Credit Investments?
Well, this is how they describe themselves.
Sygnus Credit Investments (SCI) is a specialty Private Credit investment company, dedicated to providing non-traditional financing to Medium-Sized Firms across the wider Caribbean region. Non-traditional forms of credit are more customized and flexible than traditional financing. Consequently, the Company offers an alternative channel through which Medium-Sized Firms – which are typically underserved by traditional forms of financing – can access capital to drive their expansion and growth.
SCI is a loan company that lends to other companies. Specifically companies who might have trouble getting loans typically or getting loans at the rates that they would like. Think of them as providing a Credit Union for “middle class” companies. Those who might not be able to get a loan from a bank, or those who can, but maybe want better terms which Sygnus might be able to provide.
How Do They Make Money?
Again, the prospectus has this information (as all prospectuses have to…which of course you already know because you’ve already read about the importance of the prospectus in my Quick IPO Explainer article). What they state in the prospectus is this:
The investment objective of the Company is to generate attractive risk adjusted returns with an emphasis on principal protection, by generating current income, and to a lesser extent capital appreciation, through investments primarily in Medium-Sized Firms (“Portfolio Companies”) using Private Credit instruments. The Company invests primarily in Private Credit instruments including bilateral notes and bonds, preference shares, asset-backed debt, mezzanine debt, convertible debt and other forms of structured Private Credit instruments. These forms of financing are typically more aligned with the growth and expansion plans of Portfolio Companies.
Like I said above in the “Who is..” section, they invest in private credit investments they deem suitable. These securities offer them a guaranteed return with managed risk. The payout from these investments is what will form the revenue of the company. They are currently invested in 4 such instruments to various companies, from whom they currently make approximately 10% on top of their investment each year. The cash which they also have in reserve for future use also makes them about 3.8% a year. They have hinted at further deals to come in the near future. The amount and value of those 4 investments are in the chart below.
What’s the Share Price?
They have 2 prices for their shares, one in USD and the other JMD. This might be of interest to anyone looking to invest in stocks but not wanting to change their US $ savings over to JMD. The prices are US$0.11 or J$13.72 per share and they are offering the General Public (this means you) 50,909,091 shares at IPO. The Prospectus also tells us that they reserve the right to extend how many shares they offer to the public in the event that they are offered more money than they asked for initially (as of May 15th 2018 they reportedly have already received over 3000 applications totaling roughly $21M USD, so don’t be surprised if they activate this clause).
Today (May 16th, 2018) is the final day to submit an application (unless they choose to extend the closing date, which they might, if they do, the notice will be on the JSE’s website). If you miss the boat today, then don’t worry, the shares will be listed soon after the closing date. The prospectus says, if the JSE allows it they plan to list by June 15th. You can instruct your broker to buy some on the open market, though, the price will likely be different from the IPO price. I can’t say whether it’ll be higher or lower however, but I will say, that if you are deciding to invest, you should think about how much the price will move over the life of your investment. The general advice given when investing, is to think long term. Don’t be the guy or girl who avoided buying because the price was $1 higher than IPO and then in 2 years when you hear that the price has since doubled you say “if me did know…”. Remember, you’re going to be around for your whole life, so plan for the long term.
How Can *I* Make Money From This?
There are 2 main ways. You can either, buy shares in Sygnus and hold them to receive dividends from the ownership of those shares, or you can sell the shares at a higher price than you bought them which provides you with what’s called “capital appreciation”, a fancy term for “profit”. The dividends to be paid out are estimated to be about 7% of the IPO price. That means, if you buy at US$0.11 per share or J$13.72, then you should look out for 7% on top of your money from them each year. This number can change throughout the course of business however, so anyone investing should pay attention to the company’s financials every 3 months and see what the updates are. All dividend announcements are always on the JSE’s website (www.jamstockex.com) along with the quarterly updates that they are required to give.
Who Owns the Company?
Now, this is a tricky one. See SCI is actually part of a larger group of companies, and that group is deeply involved with SCI, not just from an ownership perspective, but they also control the operations of it. Here’s a diagram that might help explain it all.
The nicely highlighted bit is the company that is about to IPO. The company’s expected ownership structure after the IPO is shown in the following chart.
As you can see, the general public (excepting early investors who got in while the company was still private) are slated to own 20.35% of the company.
Hmm…everything so far might sound good to you. So time to ask ourselves what, threats does the company face? Well, they list a host of risks in the prospectus which I won’t repeat here, however any sensible investor (this means YOU) should learn about them and think them through. Keep in mind though, that just because a threat exists, doesn’t mean that they’ll be susceptible to it. It’s also good to note that they have identified the threats to the business and it is reasonable to expect that they will be acting to mitigate the dangers throughout the normal course of business. So don’t be too scared by the threats, however, review them, make sure they make sense to you, and that you’re comfortable with their ability to make money despite the threats. They state that one of the main ways in which they avoid risk from the threats is by having a diversified set of client companies. They will not invest more than 35% in any single industry and furthermore, won’t invest more than 25% in a single group of companies. That way in the event of any company/industry suddenly collapsing, only a portion of SCI’s funds would be affected. While the rest would remain unaffected.
What Do they Want the Money For?
This one doesn’t need a long explanation. They say they want the money “to invest in credit instruments issued by Medium-Sized Firms and to pay IPO Expenses”. So they want the money to use for day-to-day business aka giving more loans and also to pay the brokers for helping them to get listed.
Phew, that was a lot eh? Now finally…
Should You Invest?
Well this one is ultimately and always up to you. I can’t tell you if you should or you shouldn’t. What I will tell you however is to make sure that you’re familiar and comfortable with the opportunity, then speak to a qualified, sensible professional and get their advice. Your broker should have employees who are able to give you this advice. You pay for this service, it’s a part of the fee that you pay them. Get your money’s worth. You can participate in this IPO by filling out the form at the back of the prospectus and submitting it with your funds to either of the companies that are brokering this IPO. They are JN Fund Managers and Sagicor Investments.
This (along with everything else I’ve mentioned here, including the application form) is available in the prospectus which is available on the Jamaica Stock Exchange’s website (www.jamstockex.com). PLEASE give it a read. Your money deserves the attention.
As always, you can hit me up on Twitter if you have any comments, suggestions or general feedback. I try to answer as many questions as I can generally. Please make it easy on me though, don’t ask me what stocks to buy, or if you should invest in a specific company. That’s advice that only your broker can give you. I can help you get to the point of learning and understanding what to look for however, which I think is much better. Teach a man to fish…et cetera, et cetera, et cetera.
Look out for my next article coming soon on the next IPO in the market Everything Fresh, which opens tomorrow (May 17th 2018). I’ll give you a similar rundown and link you to their prospectus. Let’s make some money!!!