Initial Public Offering of NIF2 Bonds
- Bond on offer:
- NIF2 4.5% 2029
- What is the coupon rate and maturity date?
- 4.50% per annum
- February 9th, 2029
- Who can participate in this issue?
- Individual investors
- Small businesses / entities
- Credit unions and pension plans
- Performance Drivers:
- RFHL Dividend Income
- Economic conditions
This week, we at Bourse provide some information and insights on the offer of the National Investment Fund Holding Company’s NIF2 4.5% 2029 bond issue (the Offer). As highlighted in the prospectus, “this five-year investment mainly to individuals and small businesses similar to the Series A Bond of NIF1 seeks to fill the void left by the maturity of Series A in August 2023.” We take a closer look at the details of the bond being issued by the NIF and the opportunity it presents to potential investors.
NIF2 Investment Highlights
National Investment Fund Holding Company Limited (NIF)’s 4.50% 2029 bond, with a face value of $400M, will be offered to resident investors of Trinidad and Tobago. As with most ‘plain-vanilla’ bonds, NIF2 will make coupon payments semi-annually. The Bond has a term of five (5) years, with 100% of the principal to be repaid upon its maturity in 2029. The Bond is secured solely by 6,546,417 ordinary shares, which are currently valued at around $785.8M based on RFHL’s Jan 26th closing price of $120.04.
Key NIF Dates
The Offer opened to the public on January 22nd, 2024, with a closing date of February 9th, 2024, at the sole discretion of the National Investment Fund. The expected notice for allotment of securities is March 7th, with the electronic transfer of refunds (if any) expected by March 12th. Unless otherwise indicated, the date for listing the Bond on the Trinidad and Tobago Stock exchange is March 13th, 2024.
Who Can Invest?
According to the Prospectus, NIF2 is being offered with a focus on individuals in mind. Accordingly, eligible investor classes include (i) individual investors, (ii) small businesses/entities with revenues of $25M or less as evidenced by Comparative Management Accounts for 2021/2022 and (iii) Credit Unions and Pension Plans. In emphasising these classes of investors, NIF2 is aiming to fill the void created by NIF1’s Series A maturity in August 2023.
Allocation of NIF2 Bonds
Investors can apply for a minimum subscription face value of $1,000. It is anticipated that Individual Investors applying for $20,000 in face value of bonds or less will each be allocated 100% of their application. In a situation where Individual applications amount to less than the total offered amount (TT$400M), Non-Individual applications would receive a pro-rated amount of bonds. As a simplified example, let’s assume the value of Individual subscriptions were $200M and Non-Individual subscriptions were $500M. In this case, individuals would receive 100% of their application ($200M). Non-Individuals, meanwhile, would receive $200M of the total $500M applied for or a 40% pro-rata allocation.
An oversubscription of the entire issue by Individuals (that is, greater than TT$400M) would result in Individual investors, subscribing for >$20,000, receiving a prorated amount of bonds. Continuing our example, let’s assume the value of Individual subscriptions were now $500M (and non-individual subscriptions remained $500M). In this case, individuals would receive – in aggregate – 80% of the total application ($500M) or $400M. It is important to reiterate that, according to the prospectus, Individuals subscribing for $20,000 or less of bonds should receive 100% allocation. Accordingly, Individuals applying in excess of $20,000 in bonds would receive an allocation of <80%. Non-Individuals, in this example and with all bonds allocated to Individuals, would not receive any allocation.
Is the NIF2 right for You?
There are several factors in which investors should take into consideration when deciding to subscribe to the bond offer:
Tax -exempt benefits: Pursuant to the Corporation Tax (Amendment) Act 2018, the profits of the Company are made exempt from corporation tax and the interest payments made in respect of the Bond are exempted from corporation tax. Under the Income Tax Act – interest payments paid or credited to resident individual investors will be exempt from income tax and business levy. Interest paid to resident corporate investors will be exempt from corporation tax and business levy, but subject to green fund levy on interest received.
Exchange-Traded–The NIF2 bond will be listed and traded on the local stock exchange. Exchange-traded bonds can be bought and sold on the exchange, through a broker, post- issuance. Investors wishing to sell their bonds before maturity can do so over the exchange (at the prevailing price).
A feature enhancing credit risk is NIF2’s fully-secured nature, with the collateral being shares of Republic Financial Holdings Limited (RFHL). RFHL is widely regarded as a blue-chip regional financial services entity, with historically solid dividend payments which will be used to fund NIF’s periodic coupon payments.
One potential risk of NIF2 which investors should consider when investing is market/liquidity risk. Investors should note, the price at which NIF2 could be sold prior to maturity is uncertain; it could be either higher or lower than its initial issue price. Looking at the price history of the NIF 4.50% 09.08.2023 Series A fixed rate bond, when listed on the Trinidad and Tobago Stock Exchange (TTSE), the bond initially traded at $1.00 of par ($100 per $100 Face Value). The bond traded as high as at $1.06 (or 106% of the initial price) and as low as $0.90 (or 90% of the initial price). This is an important consideration for investors who may be (i) unable to hold the bond for the 5-year period, and/or (ii) unwilling to take the market risk of fluctuations in the bond’s price.
How do I invest in NIF2?
In terms of opening a broker account, brokerage accounts can be opened with any broker and prospective applicants must provide the following documents (which varies depending on individual broker):
1. Two forms of valid government issued photo identification (ID card, Driver’s permit, Passport)
2. Proof of address: a utility bill dated Oct/Nov 2023
3. Proof of income: a job letter or pay-slip dated Nov/Dec 2023
4. Proof of chequing or savings bank account number to complete coupon and principal remittance details
Notably, small businesses/ entities wishing to open a brokerage account should contact their broker of choice for requirements. Applicants with existing broker accounts who would like to apply, can liaise with their broker to facilitate this transaction. Should you decide that NIF2 is the suitable investment for you, you can make an application through an authorized distribution agent, which include:
i. Bourse Brokers Limited
ii. First Citizens Brokerage & Advisory Services Limited
iii. Republic Wealth Management Limited
iv. West Indies Stockbrokers Limited
v. JMMB Securities (Trinidad and Tobago) Limited
vi. Caribbean Stockbrokers Limited
vii. Sheppard Stockbrokers Limited
viii. NCB Merchant Bank (Trinidad &Tobago) Limited
ix. First Citizens Bank branches (applications valued at less than TT$90,000 only)
N.B. Applications valued at TT$50,000 or more must be submitted to the applicant’s broker.
The Prospectus contains important information in which investors are encouraged to read carefully before making a decision to acquire the NIF2 Bond.
DISCLAIMER: “This document has been prepared by Bourse Securities Limited, (“Bourse”), for information purposes only. The production of this publication is not to in any way establish an offer or solicit for the subscription, purchase, or sale of any of the securities stated herein to US persons or to contradict any laws of jurisdictions which would interpret our research to be an offer. Any trade in securities recommended herein is done subject to the fact that Bourse, its subsidiaries and/or affiliates have or may have specific or potential conflicts of interest in respect of the security or the issuer of the security, including those arising from (i) trading or dealing in certain securities and acting as an investment advisor; (ii) holding of securities of the issuer as beneficial owner; (iii) having benefitted, benefitting or to benefit from compensation arrangements; (iv) acting as underwriter in any distribution of securities of the issuer in the three years immediately preceding this document; or (v) having direct or indirect financial or other interest in the security or the issuer of the security. Investors are advised accordingly. Neither Bourse nor any of its subsidiaries, affiliates directors, officers, employees, representatives, or agents, accepts any liability whatsoever for any direct, indirect, or consequential losses arising from the use of this document or its contents or reliance on the information contained herein. Bourse does not guarantee the accuracy or completeness of the information in this document, which may have been obtained from or is based upon trade and statistical services or other third-party sources. The information in this document is not intended to predict actual results and no assurances are given with respect thereto.”