Caribbean Management Talk
The Virtues of Listing
Author: 123jump.com Staff
Last Update: Oct 20, 5:06 PM ET
Marlene J. Street-Forrest
As the first demutualized stock exchange in the Caribbean, the Jamaica Stock Exchange is focused on improving liquidity and boosting regional cooperation on the back of solid growth in the country’s financial services sector.
Jamaica Stock Exchange
Q: How has Jamaica Stock Exchange evolved in the last four decades?|
The exchange was incorporated in August 1968, and began operating in February 1969. It is the first and largest exchange in the English-speaking Caribbean region. Before the exchange was established, we had a stock market operating on a small scale. The exchange was born out of our central bank, the Bank of Jamaica; the then Prime Minister of Jamaica, Edward Seaga, was a major force in ensuring its inception.
The objective of the exchange was to ensure that we had an efficient and a transparent stock market where investors and companies can come together to raise capital and to efficiently trade their securities. At the point when the JSE kicked off, the government gave the exchange the authority to collect a small fee called a Cess Charge on every trade, which assisted the initiation of the bourse.
The exchange began with 34 companies and, at the end of 1969; we had a market capitalization of $146 million. That entire year, we had a volume trade of 7.45 million with a value of about $6.5 million. Also in that year, we had approximately 5,000 transactions; the index started at 100 and closed at 94.98. In order to get certain government benefits, companies were encouraged to list on the exchange. We have made significant progress and currently for the period January to August 2008 the exchange has just over 21,000 transactions with trading of just over 2.12 billion units valued at US$838.9m. As at the end of August the JSE Index recorded 108,044.77 with a market capitalization of approximately US$11,18 billion. Approximately half of those companies are still listed today. The requirement of any stock exchange is disclosure, which is something that the Jamaica Stock Exchange is keen on, and some companies have come off the market because of the unwillingness or inability to persistently disclose. Some companies possibly did not see or would not have seen at some point the benefit of continuing to be listed. Today, we have 45 companies listed on the exchange. The most recent listing on the exchange in August of this year is a real estate investment trust.
Q: How has the make-up of companies listed on the exchange changed in the last 25 years? Jamaica now attracts more than 3 million tourists a year and per capita income of more than $4,000, or more than $12 billion in GDP.
The Jamaican economy has a heavy reliance on tourism, it is agricultural based, and since the independence from the UK, the country has relied on exports of sugar, banana and bauxite. This has been changing rapidly over the last couple of years because of the removal of the preferential treaty on crops such as sugar cane and bananas. Now, there is a greater emphasis on diversification of crops that are grown.
Additionally, in terms of listed companies, we have seen a shift to more service-oriented companies. The best performing companies on the exchange over recent periods have been in the financial services sector. The commercial banks, merchant banks, insurance companies, asset managers, and financial brokers have powered the growth of the local economy.
Along with recent mergers and acquisitions, many companies in Jamaica are getting ready for a regional and global positioning. A Trinidad-based company acquired wine distributor Lascelles, deMercado & Company.
Q: We have noticed that the top 10 listed companies by market cap are in the financial services sector and represent nearly 50% of total market cap on the exchange. Is this information correct?
Yes. This fact also underscores that the concentration on companies that are growing are mainly in the financial sector. The top 10 listed companies by market cap is a mix of sectors, which include financial services, manufacturing, insurance and conglomerate. Of the top ten companies by market cap, only four are from the financial services sector. Please see the table above, which is a list of the top ten listed companies by market cap as at the end of August, 2008. The financial services sector, however, does represent 50% of total market cap on the exchange.
Q: Jamaica is well-known as a tourism destination and the country has the potential to be a good outsourcing center for services such as accounting, telecommunications, and business related services. But, are any hotels or any companies in the tourism sector listed on the exchange?
The Jamaica Pegasus is the only company in the area of tourism that is listed on the exchange. The exchange has done strenuous work in trying to convince many of the other companies in the hotel industry to list on the exchange. I believe that, with time, we might see some of these companies listed to take advantage of exit strategy that the market allows, rather than the need to raise capital on the exchange.
I think, in time, you will find that the newer generation of owners of these companies will see more of the advantages in listing on the exchange than the current people are seeing. By far, we have not had the great success that we would want with some of these companies. We have tried to convince them it is not only a matter of raising capital or an exit strategy; it is a matter of how you convert what you already have in terms of realization of your gains.
When we introduce the listing of the Junior Market, we hope to find more and more small and medium companies in the tourism industry coming to the market to list and seek capital.
Q: About 80% of the corporate income tax collected by the government comes from these 45 listed companies. However, on a broader picture, how many companies are registered or how many are under family control that may be ready for a change of guard? According to my research, there are at least 500 companies in Jamaica that have J$700 million or around US$10 million in annual revenue and growing.
There are over a thousand companies on record registered with the Companies Office of Jamaica. Some of those companies can potentially list on the exchange. However, one has to work hard at changing the culture and the mindset of many of our privately owned companies.
Several factors inhibit companies from coming to market. First, many of the companies that we believe have potential do not keep their books and records up-to-date or at least not of the standing that would allow for scrutiny. Second, it is a matter of compliance with a constant standard. A company listed on the exchange must maintain its records in keeping with International Financial Reporting Standards (IFRS). Third, in terms of a company listing, a prevailing notion persists that in the event that ‘I list, I lose my company’.
The exchange’s rule is very clear. In order to qualify for a listing, there must be one hundred shareholders owning at least 20% of the company. That means the current owners can own 80% and still remain in control. But it is something that we constantly have to explain to potential listed companies. Control of your company is not lost if it is listed. The more I think we can talk about that, the greater the chances that companies will consider listing.
People like to own their own companies. It is really a mindset in an entrepreneurial society such as Jamaica. A survey conducted recently, showed that over 50% of the nation are entrepreneurs. It is really challenging to get the message out that listing is actually a more sustainable way of raising capital. It provides the breathing space that you would normally not have if you were more leveraged.
Q: Can you describe some of the major companies that are listed on the exchange?