Although the Jamaica Stock Exchange (JSE) has listed fewer companies on its indices and has seen less fund-raising activities this year, Managing Director Marlene Street Forrest is optimistic that more companies are getting ready to come to market in the short term.
Speaking with Jamaica Observer last Friday, August 26 (following the listing ceremony of MFS Capital Partners), Street Forrest said she expects at least four more companies to go public by the end of the year, adding that this was a conservative projection.
"We know that companies are preparing for listing, so we expect that towards the end of the year and next year we'll have a bumper crop," she said.
Street Forrest also pointed that going forward more companies will opt for listing on the Junior Market of the JSE, rather than going directly to the Main Market, in order to take advantage of benefits offered by the former.
Companies listing on the Junior Market not only raise capital through equity but can also increase funding for their businesses through debt instruments. They also benefit from an income tax holiday in the first five years of being on the Junior Market and thereafter half the income tax due to the Government.
"I do believe what we're seeing is a trend, that we'll see more listings on the Junior Market. You know, as a country most of our companies are small and medium-sized, so on that basis you'll see more Junior Market listings. But I want to encourage larger companies to still take advantage of the Main Market," she told the Business Observer.
When asked if the Bank of Jamaica's increased interest rates will pull some investors towards debt-based investments, she expressed her doubts, noting that both companies and individuals have seen the returns on investments from initial public offers, additional public offers and rights issues.
With some capital raises generating up to 500 per cent increase in the price of stock, Street Forrest explained that the return on investment is substantially more than corporate and government bonds and other debt instruments.
But given the rate of growth companies have experienced after listing their shares on the Junior Market, would Street Forrest consider the abolishing the tax exemption benefit in the first five years?
She explained that along with raising with raising capital, having the tax exemption in the first five years of listing provides the companies room to expand their business and grow their income and deliver shareholder value. Moreover, the managing director argued that the tax benefit is the main reason companies come to public offering shares at a discounted rate.
"It's a degree of growth and what you want to do is stimulate the company in the first five yearsâ€¦You want to propel growth in the economy, you want to propel growth in the company and it goes a far way in the pricing of those stocks," she explained.
As such, she said the Junior Market continues to attract investors and build their confidence in the index as a vehicle of "wealth creation".
Asked what changes she would recommend at this time to the improve the offerings of the Junior Market, Street Forrest told Business Observer that she was still expecting the cap on the amount raised on the index to increase from $500 million to $750 million.
"The minister [of finance] has approved that but needs to write it into law. I think it is necessary because with inflation $50 million to $500 million is not the same value today. This is why we have requested the improvement in the cap," she shared.
"I would love to see an increase in the [shares issued] from a minimum of 20 per cent to 25 per cent," Street Forrest continued.
Additionally, she believes that given the successes of the Junior Market, the JSE is now mature enough to introduce a micro market for smaller companies. The JSE head posited that creating such a market will help start-ups to "incubate" and grow,
"Naturally, there would be more need for governance, but I think it can work, I think that Jamaican business people are resilient enough and committed enough and they will show themselves as good governors of their companies," Street Forrest stated.
Alternately, she also recommended that smaller companies could also consider raising capital through private equity and list on the JSE's private market in order to build their capacity and improve their governance structure. In this way, they can then graduate to the Junior Market and then to the Main Market.
"There is a model," she beamed.