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Financial News

Jan 2009 Financial News

Junior stock exchange by June

Jan 30, 2009

The Jamaica Stock Exchange (JSE) is to launch a junior market before the middle of this year targeting small and medium enterprises (SMEs) that wish to raise up to J$500 million in capital.

According to the JSE's deputy general manager, Robin Levy, the companies can be start-ups or existing but cannot be associates of a company that is already listed. Another requirement is that a company seeking to list on the junior market has to have a mentor approved by the JSE. The requirements pertaining to the mentor have already been drafted. The company also has to comply with the initial and continual listing requirements of the JSE just as listed companies do presently.

"The JSE junior market will become a reality by the first half of this year," Levy told participants at the JSE's Investments & Capital Markets Conference 2009 at the Rose Hall Resort & Country Club in Montego Bay on Wednesday. "We are advised by Global Market Research as to how junior markets operate. Our main finding is success or failure is determined by the system that is designed and implemented. We have put together a steering committee comprised of members of the private sector, the JSE, the public sector and our regulators."

Explaining the rationale behind the new junior market, which will be aimed at companies looking to raise capital between J$50 million and J$500 million, Levy said: "The idea is that it should be very easy for an SME to access the stock exchange. There will be incentives. For example, for companies that do list will have their JSE listing fees cut in half and enjoy (corporate) tax-free status for the first five years, but will have to remain listed for at least 15 years.

What is particularly exciting is that the Ministry of Finance has recently approved that those companies that do list on the junior market will be able to issue dividends tax free."

Levy added that to date the junior market has garnered much interest with a preponderance of service companies looking to list, including tourism and entertainment companies. Most of the forms have already been completed, with the exception of the prospectus. The documents, including the prospectus, will be on the JSE's website by the end of this month.

"It is up to us in the capital markets who are serious about this junior market to go out there and beat the bushes and register companies by March of this year so that by April we can have a start-up," said Levy. "So far, we have 10 companies committed to a listing but we hope to double that number."

Levy stressed that it was imperative that a commitment be made to ensure a more favourable climate for SMEs. This would entail structuring rules and regulations to encourage SMEs to list. He pointed out that over 70 per cent of Jamaica's economy is represented by SMEs, which will spur the country's growth.

"I don't see that there are going to be any huge corporations coming to set up shop in Jamaica, employing thousands of people. That is not going to happen, therefore we need to be paying more attention to SMEs and that is where the opportunities are going to come from," said Levy.

"Nevertheless, SMEs do have some creditability issues such as disclosure requirements, the composition of their boards, and transparent corporate governance."

He went on to say that it was vitally important to strengthen institutional development for the region's capital markets. One approach Levy advocated was the building of social capital. The way to go about doing that, he said, was to have co-operation between government and communities, strong investor confidence, sound institutional capabilities and improved liquidity, both locally and in the region. He noted that in Jamaica there were strong settlement platforms and sound regulatory protection, together with a transparent market place.

"In Jamaica we have competent financial intermediaries and maturing risk management programmes. The questions we have to ask ourselves are, 'Is there demand for private equity from the private sector?' I think the answer has got to be, yes.

'Is there a supply of such capital, short-, medium- and long-term?' If the evidence of people rushing to place their money with both Olint and Cash Plus is anything to go by, then the answer is yes. 'Is there a concentration of debt as opposed to equity?' Well, looking at the balance sheet of most of the Jamaican companies, then the answer has to be that there is a concentration in debt. When most entrepreneurs want to grow their businesses the first thing they think about is going to the bank for a loan. We do not have an equity mindset and that means our (stock) markets are still very illiquid," declared Levy.

Al Edwards
Jamaica Observer
Friday, January 30, 2009