THE JUNIOR MARKET SUCCESS STORY:
In 2006 the Jamaica Stock Exchange (JSE) Board took the decision to explore the possibility of a Junior Market and commissioned Ms. Audrey Richards to explore the feasibility of establishing a second-tier Exchange that would allow companies, which were poised for growth, to access capital on the Exchange.
The JSE’s own data had indicated that there were many small and medium-sized companies in need of financing to fund expansion and reduce debt. These companies were interested in listing, but were reluctant because of accounting backlogs, poor compliance records or a fear of losing control of their businesses. The Consultant’s Report confirmed this, but also indicated feasibility and recommended the engagement of the Government to encourage these companies to list.
In 2007 Senator Donald Wehby became an ardent supporter of this initiative and armed with prototype crafted by legal consultant Andrea Kinach of Patterson Mair Hamilton, convinced Finance Minister Audley Shaw and his team at the MOFP of the viability of the plan. At Minister Shaw’s request, in February 2008 the JSE presented a framework for the Junior Market that included the establishment of a Steering Committee comprised of the persons below:
Mrs. Marlene Street Forrest Jamaica Stock Exchange (Chairman)
Mr. Gary Peart Mayberry Investments/JSE
Mr. Garth Kiddoe Institute of Chartered Accountants
Mr. Paul Lai Ministry of Finance
Ms. Camile Neil Companies Office of Jamaica
Mrs. Judith Ramlogan Companies Office of Jamaica
Ms. Cheryl Lewis Attorney General’s Department
Mr. Reginald Budhan Ministry of Investment and Commerce
Mr. Christopher Williams NCB Capital Market/JSE
Mr. Leo Williams Jamaica Money Market Brokers/JSE
In September 2008, Minister Shaw said, “I am excited about (the Junior Market’s) potential for stimulating economic growth while creating employment opportunities. The initiative serves to broaden and deepen our local financial market while stimulating the development of the SME’s. I am optimistic that this venture will improve transparency and good governance in a sector that enjoys the greatest performance of the employed labour force.”
Within six months of this release, the Steering Committee delivered its reports and had overseen the drafting of the necessary rules and constitutive documents for the Ministry’s consideration, inclusive of a suggested incentive proposals. The incentive involved a finite remission of corporate income tax, as considered necessary to encourage businesspersons to open their companies up to greater scrutiny, increased compliance and the higher levels of corporate governance necessary for listing, while also bringing existing and prospective shareholders’ valuations more closely in line so that a deal could be struck.
The signing of the Remission Notice in March 2009 captioned “The Income Tax (Jamaica Stock Exchange Junior Market (Remission) Notice 2009)” was a watershed moment for Jamaica. Jamaican companies were quick to grasp the possibilities for raising capital to fund growth, while realizing a reasonable valuation of their businesses on a “playing field” that was more level than it had even been before.
Access Financial Limited was the first company listed on November 1, 2009, as carried to market by their lead brokers, Mayberry Investments. Mayberry, under the direction of Mr. Gary Peart and Mr. Christopher Berry continued to champion the Junior Market, bringing sixteen (16) such listings to market over the next seven years. Another thirteen (13) companies were brought on board by the combined efforts of Proven Wealth, Stocks & Securities, JMMB Securities, VM Wealth Management, Sagicor Investments, NCB Capital Market and GK Capital over the same period. Twenty-nine (29) companies have so far raised over five billion Jamaican dollars (J$5b) and are now listed on the JSE Junior Market.
Junior Market companies have done remarkably well for themselves, for their investors and for Jamaica. They have reduced their cost of funds, created thousands of new jobs, given their shareholders an average annual return of over forty percent (40%) and contributed more in General Consumption Taxes and additional payroll taxes than the incentive they received, when compared to their pre-listing corporate income tax payments. It is worth noting that the participating equity cap of $500m has not restricted the growth of these companies, as Junior Market companies have on average, increased revenue by 67.4% and profit by 168.8%.
On this voyage, the “ship” has been rocked occasionally with the previous uncertainty surrounding the possible elimination of the Corporate Tax Incentive. False rumours of company break-ups to qualify have had to be combatted with facts and the presentation of historical financial statements.
What is the way forward? We have come full circle with the re-instatement of the Corporate Tax Incentive. While the infrastructure is appropriate and sound and has been tried, tested and proven, the JSE continues to focus on governance, which we consider an important pillar in the financial fabric of the Country. We work with Junior Market companies through mentors, of whom we have approved a list of thirty two (32), as a condition of listing. We continue to encourage companies to list and allow wider ownership participation in Jamaican businesses for all Jamaicans.
Jamaicans are now more than ever truly invested in wealth creation, in growing our SME’s and by extension, in growing Jamaica’s economy. This year’s first quarter alone has seen more listings than any other quarter since the Market’s inception. Governor General Patrick Allen has said, “…there is nothing wrong with Jamaica that cannot be fixed by what is right with Jamaicans” and we concur.
We believe that the Junior Market, which is growing Jamaica’s economy, is tax positive for the Government and is creating significant new employment, will continue to provide a source of financing for many SME’s locally and regionally into the future. The Junior Market, by any objective measure, it is a huge and unqualified SUCCESS and will prove crucial to our combined efforts to move Jamaica forward.