Jan 2007 Financial News

Companies still averse to listing

Jan 05, 2007

Jamaican companies remain hesitant to take their companies public despite advantages of increased brand awareness, access to capital, and tax-free dividends, because of the disclosure requirements, says Christopher Williams, managing director of NCB Capital Markets.

"We have pounded the pavement, we have met with those privately-held companies that we feel are on target for going public," said Williams at a panel discussion Wednesday on the future of the financial services in the Caribbean.

"I think a lot of them are in a position to list - they have good governance, they have good management teams, good business models, and strong internal issues sufficient to warrant a public issue. But we still have not been able to convince them on that," said Williams at the fCifth annual Caribbean MBA Conference at the Hilton Kingston hotel in New Kingston.

He reiterated the point yesterday, in an interview with the Financial Gleaner, noting that the companies were not really concerned about the costs attendant with going public.

Companies targeted

"The types of companies that we have targeted are large enough to absorb the costs in their existing marketing budget and cost is not an issue - the main concern is disclosure, both initial and ongoing. Of course, it is not worth it if you are going to the market for less than $200 million."

In fact, typically, with the printing and marketing of the prospectus as well the Jamaica Stock Exchange's application fee, it costs about $10 million for a company to have an initial public offering.

There are just over 40 listed companies on the Jamaica Stock Exchange which has a capitalisation of $808 billion. There have been five listings on the JSE in the last four years, including three last year - Mayberry Investments Limited, Supreme Ventures, and the preference shares listing of NCB Capital Markets.

Prior to that, JMMB and Capital and Credit Merchant Bank listed in 2003.

Financial analyst and managing director of Today's Money, Orville Johnson, said the reluctance of Jamaican firms mirrored an international trend.

"There is a discussion taking place on the international arena where regulation is a big part of what is taking place all over the world, especially post Enron in the U.S., post financial sector meltdown here," said Johnson.

"Also, locally, with the beefing up of the regulations here, like the Companies Act which demands certain responsibilities of directors and the reporting requirements, some private companies don't want to move to a situation where you are going to have an annual general meeting with shareholders asking questions."

Both Williams and Johnson argue that rather than facing scrutiny, companies were opting for expensive debt financing over equity despite the tax-free dividends that the latter affords.

"A number of countries have gone the route of borrowing even with high interest rates and if rates are likely to go down, it is going to reduce on the likelihood of them going public," said Johnson.

Williams, who was more specific, gave an example: "One company we spoke with felt that given that interest rates were coming down, what they would have to pay for debt financing would be cheaper than the dividends that they would have to share with an equity investor," he said. "So, they did the math and said if I sell 10 per cent of my company, I'll pay out x, while if I just borrow, I'll pay just 17 or 18 per cent on my loan from a commercial bank and I'll pay less."

Ashford W. Meikle, Business Reporter
The Jamaica Gleaner
Friday January 5, 2007
ashford.meikle@gleanerjm.com
http://www.jamaica-gleaner.com/gleaner/20070105/business/business2.html