Mar 2012 Financial News

Bringing SMEs to market

Mar 22, 2012

TTSE CEO explains benefits of listing

Instead of having to face many obstacles and the rigour of securing loans, small and medium-sized enterprises (SMEs) now have a real opportunity of raising their own capital on the third tier of the T&T Stock Exchange (TTSE). “Listing of the SMEs on the TTSE is now a reality as the Corporation Tax Act Chap (75)(2) has been amended,” says Wain Iton, chief executive officer of the TTSE, during an interview with the Business Guardian last Thursday at his office in Nicholas Tower, Port-of-Spain. “Now that it has been passed, we have a clear idea what the provisions for the initiative are,” said Iton. Finance Minister Winston Dookeran announced in the 2012 National Budget that in order to assist the SME sector and, at the same time, strengthen the domestic capital market, the Government is proposing to encourage smaller companies to list on the local stock exchange.

Dookeran said SMEs with a minimum capital base of $5 million will be able to list on the TTSE provided that they have at least 25 shareholders and hold at least 30 per cent of the share capital which must not exceed $50 million. For too long, Iton said, SMEs have been relying on relatively high cost bank loans, which add further financial risk to the inherent business risk. Dookeran had said in order to encourage this activity, the Corporation Tax Act Chap 75(2) shall be amended to provide for reduced corporation tax at a rate of ten per cent on taxable profits for the first five years. Iton explained that the initiative was first presented to Dookeran based on the success of the Jamaican Stock Exchange over the last three years, in an attempt to breathe new life into a segment of the market.

Pointing to other successes, Iton said there have been other junior markets around the world, the most successful is AIM, London Stock Exchange. Based on this awareness, Iton said the TTSE realised there was a whole segment of the business world in T&T that wasn’t using the market to raise capital. “That’s where the concept of SMEs accessing the market came about.” In the case of the Jamaica, Iton said, even though it didn’t immediately take off, eventually, the response from SMEs has been terrific. He said the first three years were spent doing preparatory work and within the second year, nine companies listed. “They now have about 12, hoping that they could add another six to eight.”

A process, not an event
Iton said the initiative is a developmental process, which would bring a two-fold benefit: a new group of companies coming to the market and a new cohort of potential investors introduced to the market. However, he explained, that the challenge with T&T is to find companies prepared to accept the responsibilities of being publicly listed. Asked what was the main reason why it was so challenging, he said a number of SMEs have not subjected themselves to the rigour of regular reporting because they are private companies accountable only to themselves. “But once you go public, the company is accountable to the shareholder and the general public.” Asked how are they going to change the mindset and the culture of such organisations, Iton said it’s more of a process than an event

“It’s a matter of advising them fully and understanding the responsibilities of the public listing. We would meet with them on an one-one-one basis and take them through the process.” Transparency and disclosure are the primary responsibilities of listed companies, said Iton. “The companies are now going to be expected to produce quarterly and audited financials, as well as an annual financial audit, which they have to share with the public.” The major challenge, he said, is governance issues. There would be a greater accountability by the board of directors to shareholders and the public.
Companies must be prepared to make full disclosure of material information in a timely fashion, Iton said. Despite the challenges, the responses are still encouraging, though. Iton said the TTSE is in preliminary discussions with seven companies, two of which are in manufacturing and fast foods, on going public. A confident Iton said once companies begin listing, the initiative would take off.

SMEs: Get ready
Calling on companies that want to grow and develop their financial status, Iton said they should begin to put governance structures in place to make full use of the $5 billion liquidity. “There is a $5 billion worth of liquidity that is sitting in the bank system. We need people to find avenues to invest that money.” Iton said. He said the menu is attractive enough and TTSE is confident of getting subscriptions. Iton explained that the amendment to the Corporation Tax Act would provide almost 60 per cent reduction in corporate taxes. The current rate is 25 per cent. “They are now beneficiaries of a ten per cent corporate tax.” For example, if a company earns a $1 million in profit before tax, it would mean that without the concession, it would have paid $250,000 worth in taxes; with the SME concession, the tax bill would drop to $100,000, saving the company $150,000.

Iton said TTSE has received referrals from bankers and is working with the T&T Chamber of Industry and Commerce and the T&T Manufacturers Association to market the initiative. He said TTSE hopes that it has listings before the 2013 national budget is presented. The banking group, First Citizens, he said, is anxiously waiting and should be listed by the end of May. Iton said all companies have to do is contact the TTSE or the brokers simultaneously to get started. “Ideally, companies come to market through brokers.” He noted that TTSE’s disclosure regime remains the same: quarterly unaudited financial after the 45-day period recorded, 90 days end of the year, disclosure of any material information and the price of shares almost immediately.

Recognising a big gap in the public knowledge and understanding of investment opportunities on the stock exchange, Iton said the TTSE has already started an education programme. He said individuals should consult a financial adviser before investing. Drawing an example as to how the public could benefit, he made reference to a graffiti artiste who was offered cash or stock options for his services by Facebook before the company went public. Instead of accepting a few thousands of dollars as payment, he took the stock options. When Facebook goes public, he is expected to be worth an extra US$200 million man.


Source:
Dixie-Ann Dickson
Trinidad Guardian
Thursday March 22, 2012

http://www.guardian.co.tt/business-guardian/2012-03-21/bringing-smes-market