Feb 2011 Financial News

Williams proposes junior stock exchange to raise capital

Feb 09, 2011

Central Bank Governor Ewart Williams is proposing the idea of a junior stock exchange as a mechanism to raise capital for the energy sector. A junior stock market is a mechanism whereby enterprises that find difficulty in raising capital can source the required financing, Williams said yesterday during the second day of the T&T Energy Conference, at the Hyatt Regency hotel, Port-of-Spain. He noted that there were successful junior markets which have operated for some time in the UK and Canada. In 2009, Williams said, a junior market was launched in Jamaica and from all reports it has been having a successful initial run. The main feature of the junior market, was to allow investors to place capital market development that is supported by appropriate tax incentives by the Government, he explained.Williams noted that this may do well as none of the 32 listed companies on the local stock market were from the energy sector. He stated that foreign enterprises were almost exclusively financed from abroad through direct equity injections.

With regards to the National Gas Company of T&T(NGC) and Petrotrin, he said these companies also financed themselves largely from international resources. But the external indebtedness of the companies have grown tremendously in the last few years. NGC's external debt more than tripled between 2004 and 2006 and Petrotrin's debt for the period increased by about $9 billion—almost all was financed by external sources, Williams explained. He added that there was a high risk associated with exploration investment and the inefficiency of domestic capital markets are an impediment to domestic financing. He further explained that the domestic capital market is limited in dealing with the financing requirement of the larger companies. “Petrotrin had to raise US$750 million in 2007 and US$850 million in 2009 to finance its gas optimisation project. The domestic markets could not supply the resources,” he asserted.

Williams said over the years there have been proposals for increasing the participation of local finance with the larger multinationals. One of the proposals he highlighted was the notion of reinventing domestic operations and opening this to wider participation on the stock exchange. But the practical implications of this have not been explored. He also noted that adhering to differing capital market regulation in various jurisdictions is somewhat of a hassle. Thus, the junior stock exchange could be an effective mechanism for raising capital for the sector. But Williams stated clearly that there had to be some kind of criteria for the establishment of this junior market.Companies that are interested in entering the market must do so via Initial Public Offerings (IPOs), Williams said.He added that annual statutory audits would be required in keeping with the submission requirements of the main stock exchange. However, he noted that a company which is solely or part of a subsidiary of a registered entity on a recognised stock exchange would not eligible to be listed.


Source
Dixie-Ann Dickson
Trinidad Guardian
Wednesday February 9, 2011

http://guardian.co.tt/business/2011/02/09/williams-proposes-junior-stock-exchange-raise-capital