by Richard Coulson
Despite the reputation—exaggerated— of its major city as a center of slums, drugs and homicides, Jamaica enjoys a capital market that may well be eating our lunch. John Issa, prominent Jamaican businessman who often visits Nassau as owner of SuperClubs Breezes, recently told me of new developments and e-mailed me the Kingston Jamaica Gleaner of June 2nd.
That journal reported that the Jamaican Stock Exchange (JSE) is planning to list 22 new companies this year, worth an estimated J$22 billion (that’s about US$170 million). They will be listed on JSE’s Junior Market, created in 2009 for smaller enterprises not large or mature enough for trading on the Senior Market. These 22 new companies will be added to the 30 already listed. This news came as an announcement from JSE General Manager Marlene Street-Forest.
The executives of our Bahamas International Securities Exchange (BISX) have for nearly ten years been hinting at plans to set up a secondary market for young or start-up companies. To date, the result has been all discussion with no action. Even the publicized efforts of our Bahamas Chamber of Commerce and Employers Confederation (BCCEC) to improve access to capital for small and medium-sized companies have not led to any visible action by BISX. Its long-time CEO Keith Davies attended the March conference sponsored by our Securities Commission to publicize the new regulations enabling “crowdfunding” as a form of raising capital. Again, there has been no response from BISX to create the required “platform” intermediary.
Our existing capital market, represented by listing and trading of corporate equities on BISX, falls far behind our neighbors in Jamaica. On June 2nd, shares of 26 companies changed hands on the JSE Senior Market, with a total value of over J$94 million (about USD$723,000). It’s a lucky day if as many as five or six companies trade on BISX, valued at possibly B$100,000, and days with zero trading are common. Jamaica has a larger domestic economy than our own, but that is not the whole explanation for the contrast. Only 20 companies have listed their ordinary shares here, and several of them are more dead than alive, with rare trading and virtually zero liquidity. The last two IPO’s (initial public offerings) were launched in 2011 and 2012. We remain distant from US or UK practice, where controlling shareholders often partially sell out to provide finance for new ventures.
The continuing feebleness of our capital markets cannot be blamed solely on BISX. It stems from deep-seated cultural factors. Much of our wealth is still held by dynasties whose founders, to their credit, built successful businesses and now are reluctant to let shares escape family control. Fortunately, we are on the cusp of a period when this reluctance can be mitigated. First, a new generation of politicians has come forward who appear to put much greater trust in the private sector than their predecessors; second, we are enjoying fruits of the digital revolution, where the Internet and all its trappings can spread information with speed and coverage never before seen, bringing education, awareness and financial flexibility to previously primitive societies. In twenty years, we can confidently predict, our so-called “inner city” communities, backward even now, will bear little resemblance to the present, and nor will their inhabitants.
In this new atmosphere, our Government need not take any steps by formal fiat to compel companies and their owners to “go public”. But it can adopt measures that can make public ownership an attractive corporate policy and encourage its use . These could include:
- For any company making a public offering regulated by our Securities Commission, grant a two-year exemption from Business License Fees.
- Amend our exchange control regulations so that in any public offering foreign investors could automatically buy up to, say, 33% of the issue without requiring the present tedious Central Bank approval process.
- Enact, at long last, effective pension legislation that would encourage companies to sell their shares to employee pension funds under tough rules to prevent self-dealing and conflicts of interest.
- Enact amendments to our Companies Act and securities regulations to give greater rights to minority shareholders, enforceable with simple procedures at reasonable
- Restructure state-owned enterprises like ZNS and NADP (Airport) for sale to private parties with proven experience. Arawak Port has done well; so could others.
- Encourage major foreign-owned businesses to offer stakes to the Bahamian public—ScotiaBank, RBC, Bahamas Food Services. Many incentives are available to spur such action.
- Take an active role in overseeing BISX, in which it owns by far the largest stake of any of the 45 shareholders. This would include a reorganization of the presently somnolent board of directors to be transparent in all its actions, and require the BISX company itself to be listed on the Exchange subject to all the governance and disclosure rules.
In addition to these specific “change orders” to our economy, Government could initiate a long-term public relations campaign to convince our corporate leaders that our economy (and their profits) would benefit by distributing their concentrated wealth among a wider range of citizens —not by any mandatory statist programs, but simply by using accepted capital markets procedures to disseminate share ownership. One approach to our business chieftains would be the creation of a Business Roundtable, similar to what started in the US thirty years ago simply as three prominent corporate executives meeting with the President, and has evolved into an influential study group led by the CEO’s of most of the dominant American corporations.
Once there are more shares outstanding from more issuers, the normal steps would follow to increase liquidity— pension funds trading more actively in equities; broker- dealers conducting more research and producing more analysts’ reports; and the media doing more stories about companies and their personalities. Gradually, public awareness of investing In securities would spread, to approach the estimated 50% of American households said to be involved in the stock market. An essential sign of a vibrant, growing economy is the existence of an effective capital market, where economic democracy can grow equally with political democracy.
Mr. Coulson has had a long career in law, investment banking and private banking in New York, London, and Nassau, and now serves as director of several financial concerns and as a corporate financial consultant. He has recently released his autobiography, A Corkscrew Life: Adventures of a Travelling Financier.
