NCB Capital Markets Limited

RATING DRIVERS

Supporting Factors

Strong market position in Jamaica and an emerging player in the Caribbean with strong support from the NCB Financial Group
Comfortable capitalization reflected by adequate capital adequacy ratios and good coverage of total assets
Continued good financial performance characterized by good profitability and asset quality metrics

Constraining Factors

Continued short-term liquidity risk because of asset/liability mismatch
Prevailing macroeconomic challenges in key territories could impact revenue growth

Rating Sensitivity Factors

Factors that could, individually, or collectively lead to an improvement in the ratings and/ or Outlook include:

Improving profitability as a result of higher income earned from its asset management and investment banking segments
Improvement in the GoJ’s credit rating leading to an improved credit risk profile of NCBJ

Factors that could, individually, or collectively lead to a lowering of the ratings and/ or Outlook include:

Worsening of NCBCML’s short-term J$ liquidity measures over a 24-month period
A downgrade in the GoJ’s credit rating leading to a deteriorated credit risk profile of NCBJ
A reduction in NCBCML’s capital adequacy ratio to below the Systematically Important Financial Institution (SIFI) regulatory minimum of 14%

COMPANY BACKGROUND

NCB Capital Markets Limited (NCBCML or the Company) is a full-service securities company, licensed by the Financial Services Commission of Jamaica (FSC) and is the wealth and asset management arm of National Commercial Bank Jamaica Limited (NCBJ).

In 2002, the Company became a wholly owned subsidiary of NCBJ when the latter acquired Edward Gayle and Company Limited, later rebranding it as NCBCML in 2003. The Company’s products and services include debt and equity securities brokerage, investment advisory and management, investment banking solutions, and other financial services for individual and institutional investors. NCBCML is one of the largest stockbrokers in Jamaica consisting of 19 branches, with 2 being added over the last year, and has 3 active subsidiaries: 1 in Trinidad and Tobago, 1 in the Cayman Islands, and 1 in Barbados^[1].

In March 2017, NCBJ and its subsidiaries completed its corporate restructuring forming a holding company called NCB Financial Group Limited (NCBFG or the Group or the NCB Group). This re-organization better facilitated the Group’s regional aspiration of becoming a leading financial services group in the Caribbean. NCBCML and its subsidiaries remain a subsidiary of NCBJ and as such, the formation of NCBFG did not impact NCBCML’s commercial operations.

In July 2020, NCBCML incorporated Stratus Alternative Funds SCC^[2] (Stratus) as a segregated cell company under the Barbados Companies Act. It was created to facilitate the establishment of a variety of alternative portfolios for investments in the Caribbean and Latin America. The objective of Stratus is to provide above average returns while making non-traditional types of investments more accessible to institutional and retail investors across the range of the risk spectrum.

^[1] The subsidiaries are NCB Capital Markets (Cayman) Ltd, NCB Capital Markets (Barbados) Limited and NCB Merchant Bank (T&T) Limited. Notably, the consolidated financial statements used in CariCRIS’ analysis relate directly to the company’s wealth management segment and includes NCB (Cayman) Limited.

^[2] Stratus has established four funds in its first phase: Infrastructure Fund, Caribbean Mezzanine Fund II, Regional Opportunity Fund and Tourism Response Impact Portfolio. The Directors of Stratus include: Robert Bermudez – chairman of Massy Holdings Limited, Patrick Hylton – President and Group Chief Executive Officer of NCB Financial Group Ltd, and Dennis Cohen – Group Chief Financial Officer and Deputy Chief Executive Officer of NCB Financial Group Ltd.

Analytical Contacts:

Keith Hamlet

Tel: 1-868-627-8879 Ext. 229

E-mail: khamlet@caricris.com

Maxwell Gooding

Tel: 1-868-627-8879 Ext. 229

E-mail: mgooding@caricris.com

Website: www.caricris.com

E-mail: info@caricris.com

Disclaimer: CariCRIS has taken due care and caution in compilation of data for this product. Information has been obtained by CariCRIS from sources which it considers reliable. However, CariCRIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. No part of this report may be published / reproduced in any form without CariCRIS’ prior written approval. CariCRIS is also not responsible for any errors in transmission and especially states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of this product.

NCB Capital Markets Limited

CariCRIS reaffirms overall ‘good creditworthiness’ ratings for NCB Capital Markets Limited

Home Mortgage Bank’s Collateralized Mortgage Obligation – CMO 2020-01

RATING DRIVERS

Supporting Factors

Good credit quality of securitised mortgage pool, notwithstanding some deterioration
Good underwriting practices of TTMF, the originator of the mortgages within the pool
Simple transaction structure, with an effective built-in credit enhancement
Legal and regulatory framework supporting the transaction provides adequate protection to investors

Constraining Factor

Mortgage pool seasoning could increase default risk

Rating Sensitivity Factors

Factor that could, individually, or collectively lead to an improvement of the ratings and/ or Outlook include:

An improvement in the loan portfolio quality, with an NPL ratio of lower than 5% and/ or a delinquency ratio of less than 7.5%, led by the recovery of delinquent mortgages by TTMF

Factors that could, individually, or collectively lead to a lowering of the ratings and/ or Outlook include:

Further deterioration in the mortgage pool quality, with an NPL of above 7.5% and/or delinquency of above 20%
Deterioration in TTMF’s NPLs to Gross loans ratio of above 10.5% sustained for 2 financial periods

CMO 2020-01 is a structured finance debt instrument created by the Home Mortgage Bank (HMB or the Bank). The product was created to securitise residential mortgage assets purchased from the Trinidad Tobago Mortgage Finance Company Limited (TTMF) on the secondary mortgage market. CMO 2020-01 offered participation certificates in 7 tranches in the amount of TT $300 million as follows:

Series A – TT $25.0 million with an average life of 0.50 years at an initial coupon rate of 2.15%

Series B – TT $25.0 million with an average life of 1.54 years at an initial coupon rate of 3.60%

Series C – TT $25.0 million with an average life of 2.56 years at an initial coupon rate of 3.80%

Series D – TT $50.0 million with an average life of 4.11 years at an initial coupon rate of 4.25%

Series E – TT $50.0 million with an average life of 6.32 years at an initial coupon rate of 5.00%

Series F – TT $25.0 million with an average life of 8.30 years at an initial coupon rate of 5.50%

Series G – TT $100.0 million with an average life of 7.12 years at an initial coupon rate of 5.25%

COMPANY BACKGROUND

The collateralised mortgages are held in Trust by TTMF and governed by the laws of the Republic of Trinidad & Tobago and established by a Declaration of Trust. The investment security has monthly coupon payments payable to all certificate holders. The certificates were structured to enable investors to participate in the acquisition and ownership of a pool of residential mortgages. Each Certificate represents an undivided beneficial ownership interest in the Mortgage Pool.

The principal amounts of each tranche available for distribution (Series A to G) are being repaid sequentially from all scheduled payments during an established repayment window. The final principal payment is expected to coincide with the maturity of each respective tranche. Thus, Series A will be fully repaid before principal repayment starts on Series B and so on. However, when unscheduled payments (prepayments, lumpsum payments and payoffs) are received, these payments will be applied in reverse order from Tranche G to Tranche A. Thus, should Series G be repaid from unscheduled payments, further prepayments will be applied to Series F and so on. The Bank also issued 3 additional Series; T1, T2 and R that will not be available for distribution[1].

The distribution of CMO Certificates represents a diversification within the Bank’s funding tools, generating liquidity while managing the Bank’s gearing position. The CMO provides funding to HMB to acquire mortgage loans on the secondary market from Approved Mortgage Lenders and to meet the Bank’s corporate financing needs. Furthermore, CMO issues by HMB also serve to develop the local capital market and the secondary mortgage market in particular, consistent with the Bank’s mission, “to facilitate the growth and development of the housing finance market by the maintenance of a secondary mortgage market funded by capital market activities.”

HMB, as Issuer of the security, has engaged TTMF as the Trustee and Administrator for the transaction. The Bank also performs the roles of Registrar and Paying Agent. The Issuer, HMB, is a related party to the Trustee and Administrator, TTMF, as both entities are subsidiaries of the National Insurance Board of Trinidad and Tobago (NIBTT). The appointed legal advisers for the transaction is the law firm of Pollonais, Blanc, de la Bastide & Jacelon.

This is the fourth CMO issued and initiated by HMB, with the first 2 successfully issued in 1999 and 2000. The third (CMO 2019-01) was issued in early 2019 and has a balance of TT $2.80 million available for distribution as at July 2021. CMO 2019-01 was rated by CariCRIS and carries an overall rating of CariA+ (SO). CMO 2020-01, is similar in structure to CMO 2019-01, with minor adjustments that serve to improve the risk/ return profile and credit enhancements to support its stability. As at July 31, 2021, CMO 2020-01 has a balance of TT $38.69 million available for distribution.

Analytical Contacts:

Kathryn Budhooram

Tel: 1-868-627-8879 Ext. 227

E-mail: kbudhooram@caricris.com

Keith Hamlet

Tel: 1-868-627-8879 Ext. 244

E-mail: khamlet@caricris.com

Website: caricris.com

E-mail: info@caricris.com:

Disclaimer: CariCRIS has taken due care and caution in compilation of data for this product. Information has been obtained by CariCRIS from sources which it considers reliable. However, CariCRIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. No part of this report may be published / reproduced in any form without CariCRIS’ prior written approval. CariCRIS is also not responsible for any errors in transmission and especially states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of this product.

[1] Fully repaid

Home Mortgage Bank’s Collateralized Mortgage Obligation – CMO 2020-01

Structured Finance Securitization Transaction TT $300.0 Million Bond Issue

RATING DRIVERS

Supporting Factors:

Good asset quality underpinned by a moderately diversified investment portfolio
Strengthened funding profile characterized by low funding costs and comfortable capitalization
Continued good financial performance despite reduced profitability, relative to prior year which included the positive impact of the sale of a portfolio asset
Adequate policies and procedures, enhanced by the implementation of an Enterprise Risk Management Framework

Constraining Factors:

Market reach capabilities limited by their small though growing asset base
Uncertainty in the global economic environment which affects PIL’s major operating countries

Rating Sensitivity Factors:

Factors that could, individually or collectively, lead to an improvement in the ratings and/ or Outlook include:

An improvement in the GOJ’s credit rating over the next 12-15 months
A material reduction in gearing ratio to the order of less than 4 times for 3 consecutive years

Factors that could, individually or collectively, lead to a lowering of the ratings and/ or Outlook include:

Economic environment negatively impacting revenue streams leading to losses.
A systemic increase in liquidity pressures in the environment leading to funding withdrawals from large institutional investors
Cost to Income ratio weakens to 75% and over
A deterioration in the GOJ’s credit rating over the next 12-15 months

COMPANY BACKGROUND

PROVEN Investments Limited (PIL) was incorporated in February 2010 as an International Business Company (IBC) in Saint Lucia. Its assets and operations are managed by PROVEN Management Limited (PML), the Investment Manager, whose registered office is in Kingston, Jamaica. In July 2011, PIL was listed on the Jamaica Stock Exchange (JSE). The Company’s primary activities include the holding of investments in portfolio companies; consisting primarily of core holdings in the Wealth Management & Banking Sector, Real estate and other opportunistic investments spanning traditional and alternative asset classes. The Wealth Management and Banking segment maintains a relatively large exposure to tradeable securities for investment purposes while also holding managing off balance sheet assets under management (AUM) on behalf of its clients for a fee. PIL primary objective is to acquire fairly priced businesses, create value and thereafter extract value through either cashflows to PIL or a direct exit of the investment. In this regard, PIL is structured as follows:

Source: Proven Investments Limited

The ordinary shares of the Company are widely held, with the top 10 shareholders accounting for 23.1% of issued and outstanding ordinary shares as at March 31^st 2021. In addition to the ordinary shares, the Company also has two classes of preference shares in issue, namely: (1) Manager’s Preference Shares – 10,000 in issue that entitles the holders to 25% of the profits and gains of the Company in each financial year in excess of an Annual Earnings Hurdle; (2) 300,000,000 8.25% authorized Cumulative Redeemable Preference Shares and (3) 700,000,000 authorized Cumulative Redeemable Preference Shares. The latter preference shares carry no voting rights at a General Meeting. The holders of the 10,000 Managers’ Preference Shares account for 50% of the voting rights in PIL on matters other than the Investment Manager’s fees. These shares are held by MPS Holding Limited (MPS), an investment holding company incorporated in St. Lucia as an IBC. This structure is typical and similar to a Fund structure and mirrors a General Partner arrangement of the private equity asset manager, with a management fee being distributed to the manager of the portfolio.

PROVEN’s investment strategy has evolved over its 10-year existence, where initially the focus was primarily an international diversified carry trade strategy, however overtime this has transitioned. The three (3) main segments under which PROVEN creates value for its shareholders are (i) Banking and Wealth management, (ii) Real estate and (iii) opportunistic investments, capturing areas such as manufacturing and tourism. Most of the portfolio’s assets still lie in the Wealth Management & Banking segment due to the Company’s core competence and expertise in this sector. As it pertains to real estate, PIL develops, sells, buys and holds commercial and residential real estate assets for both income and capital appreciation. PIL’s investments in the Banking and Wealth Division are regarded as quasi permanent, while other investments typically target a 3-5 year holding period. The investments are typically in the English-speaking Caribbean, have strong cashflow generating ability and are operated by experienced entrepreneurs and/or management teams. PIL manages its portfolio actively and drives strategic direction of its portfolio companies as a means of creating shareholder value and managing risk. As a part of the due diligence process, all investment decisions are vetted by an investment management committee which determines the viability of opportunities presented to the firm.

Analytical Contacts:

Jeffrey James

Tel: 1-868-627-8879 Ext. 236

E-mail: jjames@caricris.com

Anelia Oudit

Tel: 1-868-627-8879 Ext. 226

Mobile: 1-868-487-8364

E-mail: aoudit@caricris.com

Website: www.caricris.com

Email: info@caricris.com

PROVEN Investments Limited

CariCRIS assigns ‘adequate creditworthiness’ ratings for PROVEN Investments Limited

RATING DRIVERS

Supporting Factors:

Strategically important entity to the domestic energy sector and the Government of Trinidad and Tobago
Improvement in gas supply from continued exploration and development activity
Continued low gearing and good debt protection metrics, though reduced from prior years

Constraining Factors:

Highly vulnerable to a changing energy landscape characterised by volatile energy prices
Reduced earnings and profitability due to lower energy commodity prices and gas production

Rating Sensitivity Factors

Factors that could, individually or collectively, lead to an improvement in the ratings and/or Outlook include:

An improvement in the CariCRIS credit rating of the GoRTT
An increase of gross margins to 25% for 2 consecutive years
An increase in the DSCR to >3 times for 2 consecutive years leading to an improvement in the ability to service its amortised debt payments

Factors that could, individually or collectively, lead to a lowering of the ratings and/or Outlook include:

Debt / EBITDA increases to >5 times
A fall in the effective DSCR to <1 times for 2 consecutive years leading to a deterioration in the ability to service its amortised debt payments
A significant decline in international prices of ammonia/ methanol, leading to a material decline in revenue
Deterioration in the CariCRIS credit rating of the GoRTT

COMPANY BACKGROUND

NGC is a limited liability company wholly owned by the Government of the Republic of Trinidad and Tobago (GoRTT) and is designated as the government’s prime mover in the natural gas sector. Since its establishment in August 1975, NGC has played a leading and key role in the development of Trinidad and Tobago’s natural gas industry. With over 45 years’ experience, the NGC Group has a diversified portfolio of business interests, which can be placed under the following three major categories:

Gas transportation and compression – NGC is the sole transmitter and distributor of natural gas to the natural gas-based energy industry as well as manufacturing concerns throughout the country. NGC’s role was augmented in 1982 by the collection and compression of low-pressure offshore gas from the Teak and Poui platforms.

Merchant gas trading – Since 2004, as the sole purchaser and seller of natural gas, NGC has been purchasing natural gas from four major suppliers (British Petroleum Trinidad and Tobago (bpTT), Shell Trinidad Limited, BHP Billiton, and EOG Resources and supplying same to consumers in the heavy industrial sector as well as in the light industrial/commercial sector located at the Point Lisas Industrial Estate.

Investment holdings – NGC has strategic equity investments in natural gas liquids (NGLs) and liquefied natural gas (LNG) companies, and subsidiary and associated companies operating in different segments of the local natural gas value chain including port and site infrastructure development, marine infrastructure management and helicopter services.

In the last decade, NGC has increased its strategic positioning within the natural gas value-chain in Trinidad and Tobago while supporting the global clean energy agenda. As part of its repositioning within the value chain, the Group has made investments in the upstream, midstream, downstream and commodity trading. Furthermore, one of NGC’s primary evolving objectives is to lead the change in the domestic industrial sector to support the Green Agenda via investments in solar energy projects and work on the production of green hydrogen.

Analytical Contacts:

Musa Abdullah

Tel: 1-868-627-8879 Ext. 233

E-mail: mabdullah@caricris.com

Anelia Oudit

Tel: 1-868-627-8879 Ext. 226

Mobile: 1-868-487-8364

E-mail: aoudit@caricris.com

Website: www.caricris.com

The National Gas Company of Trinidad and Tobago Limited

CariCRIS reaffirms its ratings for The National Gas Company of Trinidad and Tobago Limited