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Jamaica-High hopes for junior stock exchange

The junior market which is to be launched by the Jamaica Stock Exchange (JSE) in April is being pitched as a major boost for the Jamaican capital market -and the overall economy- where local small and medium enterprises (SMEs) will gain access to funding in a similar manner enjoyed by their counterparts in some of the greatest financial centres of the world.

According to Dylan Coke, assistant vice-president, Business Development, at NCB Capital Markets Limited, and a member of the steering committee for the setting up of the junior stock exchange, the benefits of the initiative are far-reaching, extending way beyond the mere fact that SMEs will now have a new platform to raise capital. Coke told Sunday Finance that the junior market will provide investors with more enticing options to grow their money and it will also act as a feeder to the main stock exchange, which has in large part struggled to attract new listings over the years.”We are bringing exciting companies and fast growing companies where you can get good returns,” noted Coke. “The ideal company for a listing is a company which already has a fairly good brand and is not quite at the level where it would list on the main exchange, but with a little effort and work can be pushed to a level where it can be listed on the junior exchange and in a few years graduate to the main exchange.””The junior stock exchange is for companies seeking to raise between J$50 million and J$500 million.

Indeed, it is being structured against the background of very successful similar models across the world. The London Stock Exchange’s Alternative Investment Market (AIM), and the Toronto Stock Exchange’s Venture Market (TSX-V), are two examples. Launched in 1995, the AIM has so far raised almost £24 billion for more than 2,200 companies and over that period has graduated an abundance of companies to the main exchange in the United Kingdom. Canada’s TSX Venture Market, as of 31 December 2007, had 2,176 listed companies with a combined market capitalisation of US$58 billion.

“The steering company has looked at all of those, trying to learn from the successes and from the less successful ones, with a view to create something that really makes sense,” said Coke.

“Like the AIM, which uses significant tax advantages and less regulatory burdens as a source of attraction, the JSE’s junior market offers some enticing incentives as well. Companies listing on the junior market will be exempted from paying taxes for the first five years, and will pay only half of the statutory requirements for an additional five years thereafter. Companies will also be exempted from paying transfer tax and stamp duties on the transfer of shares and dividend payments will be tax-free.

“If you can do it in a cost-effectve way, everybody who has a company at the (qualified) level should seriously consider it,” urged Coke. “We think it is a great opportunity for companies that are looking for capital and we would be encouraging anybody who is interested and who thinks that they have a company that is at that level or could get to that level fairly quickly, to come and talk to us because the advantages are great.”

It would be disingenuous not to highlight that local equities have in general performed poorly for some time. Last year, the key index of the JSE, the Market Index, declined by a miserable 26 per cent and only a mere six out of 40 stocks on the market traded at prices higher or at least the same as they started the year. Financial analysts blamed the dismal performance on the global financial meltdown and its crippling spillover effect on equities over the fourth quarter of 2008.

Coke said he is aware that there will be some skepticism about the viability of the project in the current economic environment where the economy is down, investors are skittish and government paper is trading at near 25 per cent – dampening the appetite of some for equities. However, he said that the “savvy investor” – looking for diversity and long term returns – knows that this is an opportune time to invest.

“Yes, the equities market in Jamaica is down and has been down for a little while but equities market are cyclical,” noted Coke.

“Do you wait until it is back to decide to set up a junior market?” he asked. “Because, generally speaking, by the time everyone has realised that the market is back, you have already missed the boat.”

Further more, he added that the steering committee is structuring the market in a way that is feasible in the current environment.

“We are not going to try to get ahead of ourselves; we are going to create something that is workable and is of a reasonable size considering the market now and then as the market comes back you can grow with it,” he said.

According to Marlene Street-Forrest, JSE general manager and chair of the steering committee, the committments from companies interested in listing on the junior stock exchange are far ranging, extending across a diversed group of sectors. This is expected to be one of the major draws of the junior stock exchange.

“We expect that there will be quite a number of companies coming to list,” Street-Forrest told Sunday Finance. “Through our member dealers, we are seeing companies as it relates to non-traditional areas such as agriculture, media and tourism.”

Two weeks ago, at the JSE’s Fourth Regional Investments and Capital Markets Conference, JSE Deputy General Manager Robin Levy disclosed that 10 companies have already committed to a listing, and the JSE hoped to double that number by the time the junior market is launched. Levy’s demand does not seem far fetched, as Coke revealed that NCB Capital Markets by itself has been approached by about a dozen credible companies expressing an interest to list on the junior market.

“Alot of interest has been expressed from a variety of companies – retail companies, service companies, manufacturers etc” highlighted Coke.

Perhaps, the most important implication of the junior stock exchange, being put forward by its developers, is what it can do for the local economy. SMEs are seen as the backbone of economies worldwide. Jamaica’s SMEs however have long struggled with inaccessibility to capital and various hindrances to growth in an unfriendly business environment. Minister without Portfolio in the Ministry of Finance, Senator Don Wehby, last month said that the junior stock exchange is a solution to this adversity faced by the sector.

“Typically, this industry accounts for more than 90 per cent of all firms, 60 per cent of employment, and 40 per cent to 60 per cent of output in most economies,” said Wehby. “There is no capital market facility in Jamaica for SMEs to raise equity capital, which is extremely important to have a proper capital structure, hence the creation of the junior stock exchange.”

Street-Forrest, also mindful of the positives a vibrant capital market for SMEs can bring to the economy, pleaded with investors to support the venture.

“I say to persons who invest, we need to build jamaica and we need to look at these companies that are coming to the market,” she said.

Other members of the steering committee are Reginal Buddhan, permanent secretary in the Ministry of Industry, Investment and Commerce; Camile Neil, acting deputy CEO and director of operations at the Companies Office of Jamaica; former accountant general Millicent Hughes; Cheryl Lewis, director of the General Affairs Division in the Attorney General’s Department; Garth Kiddoe, chair of Future Committee and council member at The Institute of Chartered Accountants of Jamaica; Mayberry CEO Gary Peart; and JSE director Leo Williams.