NCB Financial Group’s US$300M Bond Dilemma

NCB Financial Group (NCBFG), once regarded as a pillar of regional financial strength and innovation, is now facing an intensifying crisis of investor confidence. Central to the unfolding uncertainty is its proposed US$300M bond, a highly anticipated transaction announced, intended to refinance maturing obligations and bolster the group’s balance sheet. Yet weeks later, there has been no pricing, no placement, and no transparency around market reception. For a group that once led the charge in regional banking modernization, the sudden silence was jarring.

Only recently it was reported that to secure the bond, NCBFG took the unprecedented step of pledging its 61.77% stake in Guardian Holdings Limited (GHL), the group’s largest and most profitable subsidiary, as collateral. This move, rarely seen in Caribbean capital markets, raised red flags among investors and regulators alike, signaling not just market hesitation but potential internal strain. But the bond itself is not the root of the problem, it is merely a symptom of deeper, systemic issues within NCBFG’s structure, strategy, and governance.

Breaking It All Down. How NCBFG Got To This Position?

In June 2025, NCBFG announced its intention to raise US$300M in the international capital markets through a senior note issuance. The goal was straightforward, refinance a significant wall of upcoming debt maturities totaling over US$395M across the holding company and key subsidiaries.  Public disclosures and rating reports suggest a total refinancing need of over US$395M spanning 2025 to 2027, with the majority concentrated in 2025. Much of this is linked to the group’s banking and insurance subsidiaries, as well as previously issued notes.

On the surface, this was a routine refinancing exercise, but, this marked a significant point NCBFG’s history to tap the global market for amount of this size and it came at a time when serious questions were surfacing around the group’s liquidity position, capital allocation, and corporate governance practices. Investors reacted cautiously. Despite NCBFG’s history of consolidated profitability and the relatively stable macroeconomic backdrop in Jamaica, the market focused on the structure of the issuer rather than the group’s surface level earnings.

Source - NCBFG Financials

At the heart of the concern was NCBFG’s HoldCo status meaning, 1) NCBFG Had No Operating Income of Its Own

NCBFG, as a holding company, does not sell any products or services directly to customers. It doesn’t operate branches, issue loans, underwrite insurance, or collect premiums. This means it doesn’t generate operating income like interest, fees, or underwriting profit. Instead, the parent company’s financial health depends entirely on the performance of the companies it owns. Without any operating income, it has no reliable internal cash flow to cover its own expenses or debt repayments.

Source - NCBFG Financials

2) It relies on Dividends from Subsidiaries (NCB Jamaica and Guardian Holdings Ltd)

To pay its bills, including interest on debt, NCBFG relies entirely on dividends and income transfers from its subsidiaries, primarily:

• NCB Jamaica, which handles commercial and retail banking.

• Guardian Holdings Ltd (GHL), which manages life, health, and general insurance across the region.
  

These companies are regulated, meaning they must follow strict rules on how and when they can pay out dividends. Regulators in Jamaica and Trinidad, for example, can restrict payouts to ensure local solvency. If these subsidiaries face earnings pressure or regulatory capital constraints, they might not be able to send money to the parent, putting NCBFG’s cash flow at risk.

Source - NCBFG Financials

Its structures like these that create added cashflow uncertainty . For example, in June 2023, NCBFG received a J$11B dividend from its main banking subsidiary, NCB Jamaica. But instead of holding onto the cash to help pay its own expenses or debt, it quickly reinvested J$9.8B of that money to buy more shares in NCB Jamaica. While this move might seem smart , since it increases future ownership, it didn’t actually improve NCBFG’s cash position. The company still has no income of its own and relies fully on getting dividends from its regulated subsidiaries, which can be delayed or blocked. Reinvesting the same cash it just received shows how fragile its financial position really is, and why investors worry about its ability to meet obligations at the parent level.

3) Cash Flows Are Fragile and Structurally Subordinated

Because NCBFG sits at the top of the corporate chain, it only receives cash after the subsidiaries meet their own obligations, like paying depositors, policyholders, staff, taxes, and their own lenders. This is what’s called structural subordination, parent level debt is inherently riskier because it’s legally behind the subsidiaries’ liabilities. In short, even if NCB Jamaica or GHL are profitable, those profits may not flow up to NCBFG in time (or in full) to cover its own bond payments. This is why credit rating agencies like S&P and Fitch assigned low speculative-grade ratings to the parent-level debt because it lacks control over the timing and certainty of its own cash flow.

Source - NCBFG Financials

As a result, Fitch assigned NCBFG a provisional rating of B+, pointing to the group's heavy reliance on dividend flows from subsidiaries and rising leverage at the holding company level. S&P took a stricter view, rating the bond B–, two notches below NCBFG’s core operating entities. They cited concerns over weak financial flexibility, limited control over cash flows, and governance transparency, signaling deeper market skepticism about the holding company’s ability to manage its obligations independently. What truly revealed the market’s concern wasn’t just the low credit ratings, it was how investors responded when NCBFG tried to sell the bond. The company hoped to borrow at an interest rate of around 9.5%, but investors pushed back and demanded much more, between 13% and 14%. These kinds of high yields are usually seen with countries or companies that are struggling financially or seen as risky. In other words, the market didn’t believe NCBFG was a safe bet unless it offered extra protection.

To get the deal done, NCBFG made a bold and unusual move, it pledged its most valuable asset, its 62% ownership in Guardian Holdings Ltd (GHL), which equals over 125M shares, as collateral for the bond. That means if NCBFG can’t repay its debt, investors could take control of its stake in GHL. This turned the bond from a regular unsecured loan into a secured one, backed by real, valuable shares. This kind of move is almost unheard of in the Caribbean. Large holding companies don’t usually need to mortgage their key subsidiaries just to raise money. And even after making this major concession, NCBFG may not raise the full US$300M it originally wanted. Despite that however, pledging GHL shares as collateral might sound secure, but it comes with serious risks. First, the value of that collateral depends entirely on GHL’s share price. If the price of GHL stock drops sharply, whether due to market volatility, poor performance, or unexpected losses, the total value of the pledged shares shrinks. That could trigger problems in the bond agreement, like violating LtV (loan to value) limits or forcing NCBFG to offer even more collateral to make up the shortfall. And if NCBFG defaults, investors may not be able to recover the full amount they’re owed because the shares won’t be worth enough. This risk is further amplified by the macro backdrop given the GHL's income exposure to Trinidad and Tobago and the wider Caribbean.

Source -TTSE

Second, even though the shares are pledged, GHL is still a regulated insurance company. It’s overseen by financial authorities in several Caribbean countries, and those regulators can limit how much cash GHL is allowed to pay out in dividends or even stop a transfer of control. So if NCBFG runs into trouble, bondholders may be able to take the shares, but not extract any money from GHL directly. That makes this collateral very different from cash or hard assets. If GHL runs into its own issues, like investment losses, rising insurance claims, or regulatory penalties, then both the value of the shares and the income they produce could collapse. In that case, bondholders are left holding an asset that looks strong on paper but delivers little in reality. A useful comparison to understand the risk NCBFG is taking by pledging its GHL shares is the collapse of HNA Group in China. HNA, a once-powerful conglomerate, funded its global expansion by borrowing heavily and using its stakes in valuable subsidiaries, including listed and regulated companies like Hainan Airlines, as collateral. This worked only as long as those subsidiaries kept performing well and their share prices stayed high. But when the value of those pledged shares dropped and some subsidiaries reduced or paused dividend payments, creditors began demanding repayment or seizing the collateral. This triggered a chain reaction, defaults across entities, investor panic, fire sales, and ultimately the breakup of the entire group. The lesson, when a holding company mortgages its most important subsidiary to secure debt, as NCBFG just did with GHL, it ties the fate of the entire group to one asset. If GHL’s performance slips or its dividends are interrupted, bondholders could try to seize control, potentially destabilizing the entire group’s structure, hurting market confidence, and diluting shareholder value. This is the same structural risk NCBFG now faces and why some investors view the deal as a warning sign.

Source - WSJ

Although the bond deal eventually closed, the process told a much deeper story one of negotiation under pressure, not careful strategic planning. What started as a routine refinancing effort quickly morphed into a collateral backed rescue mission, signaling the market's deep skepticism about NCBFG’s standalone creditworthiness. The transaction exposed several underlying issues, 1) Investors’ lack of trust in NCBFG’s ability to manage its own liquidity without relying heavily on dividends from its regulated subsidiaries; the absence of clear contingency plans at the holding company level 2) Growing concerns over transparency, discipline, and governance. The fact that key covenants and bond terms remain undisclosed only reinforces investor unease. More broadly, this episode highlights how emerging market holding companies, especially those without operating income of their own, are now being held to stricter standards around financial clarity and governance. It came at a steep cost both financially and reputationally and leaves open critical questions about NCBFG’s future funding capacity, the security of its crown jewel assets, and whether it can rebuild market confidence after such a visible and strained capital raise.