JAMAICA’S capital market has been quiet since the start of the year but recent announcements by industry giants Omni Industries and NCB Financial Group regarding seeking financing have ignited expectations for a vibrant second half of the year.

Financial analysts have been keeping watch on the market’s activity, however they have expressed conflicting views on whether the new hunt for capital midway into the year means a genuine revival in activities after a lull, or is merely a circumstantial occurrence.

Ryan Strachan, GK Capital’s vice-president of investor relations, is leaning towards the latter. In an exclusive interview with the Jamaica Observer Strachan reasoned that he has never interpreted the relatively lower number of public transactions as a crisis of confidence.

“I just see it as more circumstantial than anything else,” he said. “The reality is that in Jamaica’s economy, with the growth that is happening and the continued velocity of transactions and economic activity, the needs of clients were always there. It just so happens that, in many cases, circumstances that were not anticipated initially caused some transactions to be delayed.”

Strachan contends that the deceleration in market activities isn’t indicative of hesitancy but rather reflects the intricate nature of market preparations.

“A lot of IPOs require quite a bit of groundwork before they come to market. It’s sometimes routine but its takes a lot of time. For example, a change in asset ownership. Because an entrepreneur may have built the business from the ground up he may have gotten a loan from an uncle or an aunt and so the land that the business operates on is the name of a relative. That needs to be transferred, and other things like share ownership needs to be tidied up before the business can go public,” he said.

Analysing recent market dynamics unveils a concentration of activity among a few prominent players. Historically, entities like Mayberry Investments Limited (MIL) played a pivotal role in driving IPOs but a shift in its focus to other sectors has left a void in the market, Strachan said.

“It just so happens [that in] years prior, a lot of the IPOs were being done by Mayberry [but] they have directed their attention elsewhere for now, and so when you have a big player like that shift focus it will have an impact on the number of listings,” he continued.

Still, economic and financial analyst at NCB Jamaica, Mikol Mortley reckons that issuers — particularly those coming to the market with initial public offerings or IPOs — may have deliberately delayed market raises to capitalise on any opportunity to raise more funds.

In March the Government of Jamaica, through the Ministry of Finance and the Public Service, announced an increase in the participating share capital limit from $500 million to $750 million for companies on the Junior Market of the Jamaica Stock Exchange (JSE).

The raise in share capital comes after much lobbying from the heavy players in the private sector such as MIL and Jamaica Securities Dealers Association.

“I think they would have preferred a billion dollars but $750 million is halfway and isn’t that bad. That effectively means that more companies can come to market and raise a little bit more money than they would have been able to raise in the past. That’s one part of the argument,” Mortley said.

“The other side is that what you usually see is that if interest rates are high then equity returns generally fall. We saw those equity returns fall during COVID-19, and they stayed low, but the market has been quiet for some time which means that there is a little room for some activity,” he added.

Omni Industries became the first company to issue an IPO since the start of the year. The company seeks to raise $500 million from the sale of 500 million shares at $1 each. Half of the proceeds will go towards expanding its plastic products manufacturing operation and the remainder to current shareholders.

Before that, NCBFG came to market with an additional public offer (APO) in which it seeks to raise $5 billion with the option to upsize to $7.5 billion.

“NCB Financial has placed considerable and deliberate focus on future-proofing its businesses, and in most instances the enabling strategies require some degree of patient capital,” stated Chairman Micheal Lee-Chin in the prospectus.

There are also activities happening in the bond market. Mayberry Jamaican Equities will tap the bond market to raise between $2.25 billion and $3.38 billion to refinance existing debt and expand its investment portfolio. Overall, activities on the stock market have slowed since the advent of COVID-19. In 2022 some six companies were added to the Junior Market of the Jamaican Stock Exchange, and one company — One Great Studio — listed last year.

Nonetheless, managing director of JSE, Marlene Street Forrest says the fundamental demand for capital remains steadfast, with several companies at various stages of readiness to enter the market.

“The expectation now and towards the end of the year is that we should see a pick up in the number of issuers coming to market for additional capital via APOs, and new capital through the IPOs — whether on the main or junior market,” Street Forrest said.

We know definitely that many are preparing to enter to equities market but the issuers still feel that it is a good time to release money via bond market and then list on the JSE. So, in all three areas we anticipate increase in activities,” she continued.

Investor appetite

As more companies prepare to tap the market for capital, investor interest is crucial in driving market activity. Experts agree that investors are becoming smarter and more mature in how they choose where to put their money.

“We have been through 50 plus IPOs in the last 10 to 15 years. I think investors now are a lot more discerning, a lot more mature, but a great opportunity will always find favour. Does it mean that once a company goes public they are always gonna have money thrown at them? I don’t believe so. I believe that the strength of the opportunity will determine the investor’s reaction,” Strachan said.

He adds that over the past few years GK Capital has prioritised Grade A-type businesses to ensure the success of market raises.

“The market has dictated that the prime opportunities are the ones that should be given the attention. It depends on whether it is a junior market or main market listing but, naturally, we would look for high levels of profitability, growth, or just great potential in terms of the company’s outlook,” he said.