The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian insurer has swapped $3.5 million of receivables owed to it by its two largest shareholders for “notes” paying higher interest rates, as it seeks to “plough” liquidity back into the balance sheet following construction of its new $11 million headquarters.

Anton Saunders, RoyalStar Assurance’s managing director, told Tribune Business that the arrangements with Sunshine Holdings and Star General Investments had given it medium-term investments yielding much higher returns than bank deposits.

RoyalStar’s 2012 annual report revealed that Sunshine Holdings and Star General had issued it notes worth $2 million and $1.5 million, respectively, with both sets due to mature in 2017.

“During 2012, two related party agents issued notes to the group [RoyalStar] totalling $3.5 million in settlement of receivables of equal value,” the financial statements said.

Mr Saunders told Tribune Business that the two sets of “notes”, both paying interest at Bahamian Prime plus 1.5 per cent, swapped out short-term debts and gave RoyalStar much higher returns than Bahamian commercial banks were currently paying on fixed-term deposits.

And these improved investment yields would help the property and casualty underwriter to rebuild balance sheet liquidity, which had been drawn down to finance its new JFK Drive headquarters.

“Right now we are kind of concentrating on moving to our building, which is behind schedule by two months,” Mr Saunders told Tribune Business.

“We’ll be in the building by the end of June. It’s going to be about $11 million all in. We did raise $5 million in preference shares for the building, to build it out, a long time ago, and put $6 million of our own money into it.”

This, Mr Saunders added, explained the $6.8 million year-over-year drop in RoyalStar’s bank term deposits from $25.282 million at year-end 2011 to $18.481 million a year later.

As a result, he explained: “We would like to plough some of that liquidity back into the balance sheet. We do not have any more capital expenditure on a project like that, so that money will be ploughed back into the banking system and whatever investment opportunities we have locally.

This was where the ‘swap’ deal RoyalStar’s two largest shareholders came in.

Pointing out that the interest yields were 1.5 per cent above Prime, and fully secured by collateral, Mr Saunders said: “The rates we’ve been getting in the banks are almost zero; 1-2 per cent on fixed deposits.

“It was good for us and good for them. It spreads out their payments to us. The term deposits dropped because of the money we ploughed into the building, and it will switch our portfolio to more medium-term investments as opposed to short-term investments. They’re fully collateralised, give us longer-term interest rates and we like the people we have to deal with.”

Apart from RoyalStar’s own business operations, the JFK Drive headquarters building will contain a Royal Bank of Canada branch and two other tenant spots. The insurer will turn its attention to filling these spaces once it has moved in.

“We’ll save rental income from where we are now,” Mr Saunders said in relation to the advantages of RoyalStar becoming a property owner, as opposed to leasing its current Collins Avenue premises.

“We’ve been here for about 17 years renting. We have to move now, because this building is fully leased out again, mainly to government offices. We have to get out of this building to new premises and continue with our philosophy. We’re going to move location, but not philosophy.”

Elsewhere, RoyalStar last year took a $304,750 impairment on investments it has in Sun Shipping’s corporate bonds, inclusive of $54,750 interest. It is unclear whether this firm is related to Sunshine Holdings.