$750-m cap
Higher ceiling for capital raise among a slew of reforms being considered for Junior Market companies

THE Jamaica Stock Exchange (JSE) is exploring an overhaul of some of its rules to deepen investor participation in the market in the face of a push from the investor community.

Marlene Street Forrest, managing director of the JSE, said among the changes to be made are an increase in the maximum amount of funds companies can raise in an initial public offering ahead of listing on the Junior Market and the circuit breaker rule “to relax it a bit more.”

Based on JSE rules, companies intending to list on the Junior Market are allowed to raise between $50 million and $500 million. However, Street Forrest said that maximum cap could be increased to $750 million if the Ministry of Finance approves a request to have it increased.

“We have seen with the inflation and with the devaluation of the Jamaican dollar that the value of the funds to be raised has been depressed, so we have applied to the Ministry of Finance under whose purview it is to determine whether that cap can be improved, and we were recently given an update that it is under active consideration,” Street Forrest told the Jamaica Observer.

“We should expect pretty soon that the ceiling will be moved from that $500 million and that would be a sweet sound to many companies and investors...giving them a little bit more bandwidth in terms of raising capital and stimulating the market too.”

Companies raising capital in recent times have seen their offer for funds oversubscribed several times. D0lla Financial, the last company to raise capital and list on the Junior Market, sought the maximum $500 million from the public in its initial offering, but attracted a total of more than $4.7 billion. Given that it could not upsize the offer, the company had to return $4.2 billion to shareholders. JFP sought $280 million but attracted $675 million, EduFocal sought $130 million but attracted $428 million and Spur Tree Spices went to raise $335 million but attracted a total of $1.3 billion.

“Arriving at the figure of $750 million, we did a simple maths,” Street Forrest said, “What we did was to work out what the Jamaican dollar was valued vis-a-vis the US dollar in 2009 when the Junior Market was started and we benchmarked it to the value of the dollar now...in order to take the cap back close to where we believe it will be comfortable for the Government and comfortable for the issuer.”

She said as the years go by, the JSE will continue to ask for the cap to be reviewed.

“We continue to make changes as the market evolves. When we started the Junior Market we didn’t have a rule that says at least 50 per cent of the proceeds of an initial public offering must come back to the company. So we keep making changes as we go along,” Street Forrest added.

She said another change could see Junior Market companies being fined for breaching rules of the stock exchange.

“We have made changes in terms of some of the rules within the Main Market that the Junior Market must attend to as well. One of the things I know that is under active consideration is that, as it is with the Main Market now, where there are breaches to the Main Market rules, there is a fine for each breach. I am pleased that the market has developed sufficiently that the Junior Market companies, which are very compliant based on the level of mentorship and governance, but we are going to put in place fines that means if they breach any of the rules, they will be fined.

The proportion of shares offered to the public could also change. As it stands, companies going public must offer a minimum of 20 per cent of their shares to the market but Street Forrest said that figure is under consideration and could be increased to 25 per cent.

A requirement is also being considered for companies to disclose efforts being made to preserve the environment. Street Forrest said it is one of the changes she wants to make before she demits office for retirement next year as a means of helping businesses to think about sustainability.

“What we are going to be doing is not to put in hard and fast rules. But we are going to say to companies, you need to consider that pretty soon. From the standpoint of IFRS [International Financial Reporting Standard], there is a requirement for disclosure on the environment. So we don’t want our companies to be left behind. So we will be giving some benchmark as to what these things should be in terms of what they should have as active consideration in terms of their internal processes, in terms of the environment and matters related to the environment in communities in which they operate.”

Also under consideration are changes to be made to the circuit breaker rules, especially for new listings.

“On the first day of listing there is a possibility for the stock price to be traded in a band of plus or minus 30 per cent of the original price. We believe at this point that this is fair and should be allowed to continue,” Street Forrest outlined before adding, “As it relates to the circuit breaker, the stock exchange has it under some consideration, and let me just hasten to say, not to move the circuit breaker, but to do some amendments to the circuit breaker for a little bit more latitude.”

“We know there has been many push in Twitter land for us to remove the circuit breaker, but we have always maintained that as we are now in a maturing market, it is important,” Street Forrest said while pointing out that the stock exchange is “listening to our investors and the market and we are currently doing some review to relax it a bit more, but definately not removing it,” as she pointed out that if it was not for the circuit breaker, many companies would have faced bigger losses in trading at the start of the pandemic. Last week after the listing of Dolla Financial, trading on the first day was halted by the circuit breaker rules, as the company’s stock price which listed at $1, breached the 30 per cent limit allowed on a single day, leaving many who wanted the stock and value it higher frustrated. It led to renewed calls for the JSE to do away with the circuit breaker or make changes to the rules for how much a stock price can change for a company on its first day of trading.

“Could the IPO process be made to mirror the USA, where the stock price opens at the price of the first trade,” tweeted Ryan Strachan, vice-president of investor relations at GK Capital Management — the private equity and investment advisory arm of GraceKennedy. He expounded, “In other words, the list price is $1, but the first trade [price] is $1.50, so that’s where the circuit breaker should start tracking it from,” he said in reference to Dolla Financials first trade last Wednesday.

Rule changes apart, Street Forrest said she is heartened to see an increase in the number of investors purchasing stocks. A decade ago, barely five per cent of the population traded stocks. Today, that number has more than doubled to 12 per cent or close to 300,000 individuals.

The category of people who are enjoying the market is even more significant.

“We are seeing more women coming to the market to invest. We are seeing the age group of investors falling, especially among people aged 18 years to 35 years, so you know that for the stock market the future is sound. What we want to see more of though...some of the time you find that the investor comes in for a particular issue, say a TransJam, and then you don’t see them again. They are on the books as account holders but that repeat purchase and building that portfolio, that’s where we want to go now. We want to go to the portfolio building and not just a single stock-and that would require active engagement from our broker community. It is going to require us moving that needle from the 99 companies we have listed. We have to go beyond to 200 so that people become comfortable in building portfolios.”

The Jamaica Stock Exchange is considering a number of rule changes to attract more investors to the market.
Managing director of the Jamaica Stock Exchange Marlene Street Forrest says she has asked the Ministry of Finance to increase the maximum funds companies seeking to list on the Junior Market can raise from $500m to $750m.
Dashan Hendricks

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