Oct 2005 Financial News

Room for growth in capital markets in Barbados

Oct 10, 2005

Despite present fiscal conditions in Barbados that encourage debt financing over equity financing, and are therefore a deterrent to companies listing on the Barbados Stock Exchange (BSE), there is still room for incremental growth in Barbados'capital markets.

These are the sentiments of Mr. Tony Johnson, the first General Manager and Secretary of the BSE. Johnson stated that companies going the route of debt financing could fully claim the interest payable on loans for tax purposes whereas companies financing via equity had to pay taxes on their earned profits as well as on the dividends they paid to their shareholders.

"You have a double taxation issue so it's more expensive for a company to raise capital by virtue of equity rather than debt," he said.

Johnson's comments are coming after a recent symposium put on by the Barbados Stock Exchange entitled "Going Public and Listing on the Barbados Stock Exchange & Making an Informed Decision". He lauded the efforts of the Exchange in trying to encourage more companies to list.

"The exercise has to be one of incremental awareness, education and promotion," he stated. The past manager said that many companies were further deterred from listing because they feared losing control of their businesses as well as revealing valuable information to their competitors.

"Many businesses emerge out of family businesses and there is still the lingering fear of loss of control if you go public as well as disclosure as all listed companies have minimum requirements for disclosure," he said.

Johnson however stated that listed companies did have the advantage of having a greater amount of funds available to them, provided that they proved to be sound investments. "A financier, like a bank or financial institution may have a maximum in place whereas on the free market the company may have a wider pool of funds at their disposal," he said.

Another advantage was the lack of a fixed repayment term for publicly traded companies. According to Johnson when funds were raised via an initial public offering they went directly to the company so that it could engage in productive endeavours. Investors then possessing those shares could then trade them depending on the performance of the company. "If you have a shareholder in a company who wants to become liquid, the exchange is the mechanism whereby that person can sell to someone who is willing to buy....it depends on the performance of the company that the shares can be traded on the exchange," he stated.

Mr. Johnson added that equity could be more efficient in the long run because it brought investors and businesses (that had perceived opportunities for investments) together. "Capital markets are an efficient way of bringing the two actors together so funds can be allocated in an efficient manner where they can be used more effectively," he said. He stated that growth in our capital market would depend on the prosperity of the CARICOM Single Market and Economy (CSME) and the ability of businesses to penetrate extra-regional markets. "If there is demand externally for goods and services then the businesses will want to raise capital and it may be in their interest to use equity....but we have to look to external growth," he said.

The past general manager stipulated that there was room for growth in our markets but the growth would be incremental internally because of the limited number of companies on the island.

"We speak in terms of hundreds and not thousands....because of the limited range and scope that we have, we would always expect incremental growth rather than a giant leap," he said.

Marita Greenidge
The Barbados Advocate
Monday, 10th October, 2005.
http://www.barbadosadvocate.com/NewViewNewsleft.cfm?Record=22932