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We want to go to market, but how?
ALICIA ROACHE Business Reporter roachea@jamaicaobserver.com
Friday, December 18, 2009
LISTING on the Junior Jamaica Stock Exchange (JSE) is seen as a viable option for raising capital to finance the growth and expansion of small and medium-sized enterprises (SMEs). In Jamaica, the Junior Market, a stock market attached to the existing JSE main market, is designed for the benefit of raising between J$50 million to J$500million for these enterprises.
In a forum organised by Mayberry Investments Limited, General Manager of the JSE, Marlene Street-Forrest called for more SMEs to consider listing on the Junior Market in order to benefit from the capital infusion and the attractive tax benefits, including: zero tax in years one to five and half the normal income tax in years six to ten, reduced trading fees and exemptions on transfer tax on shares and stamp duties.
However, while many small businesses seem eager to access the benefits, not many know how the stock exchange works, or even how to begin the process of going to market.
"I think it's a good idea when your company is doing well," said Chris Barrett, CEO of Global Courier Services which lists itself as Jamaica's fastest growing e-Commerce solutions provider. "But I'm not 100 per cent familiar with investments and how they work, especially in Jamaica" he said. "I would have to be more educated about it. However, if a company is doing well and is willing to go public and there is enough interest out there for an investor, then it's a good idea."
The hotel and tourism industry has suffered following the global financial crisis, with some resorts having to lay off staff and suspend operations in the hope of a future turnaround. The reduced cash flow has placed pressure on the companies to stay viable. However, when demand turns around, there may still be a challenge in getting the non-traditional companies to market. President of the Jamaica Hotel and Tourist Association (JHTA) Wayne Cummings said that while going public is a viable one, "It's not an avenue that has been floated properly in the sector".
"The hotel owners have a very proud record, correct or not, of being independent. I think it's something that would have to be taken to them and sold to them. The Jamaican hotel industry has for a long time been about 100 per cent ownership," Cummings said.
The issue of relinquishing control was a point of departure for some business owners at the Mayberry forum, with presenters pointing out that control would not be given up, and that going public means more accountability on the part of the owners, who can maintain majority shares in the company.
"It is actually a viable thing. There are persons who will take their money and invest in this stock exchange, but whether they are prepared to go to market is another thing altogether," Cummings said.
He argued for greater education about the sector and offered to be a facilitator of the process if the stock exchange is willing to begin the sensitisation exercise. "They would have to come and sell what they have. I think we probably need to be educated. I would facilitate them and have them come and speak to our council," Cummings said.
Noted Menswear designer Bill Edwards, CEO of the fashion house of the same name, says he would also value the to opportunity to "get some extra cash" for his growing business.
"I don't know much about the stock exchange but it's something that we have thought of," he said. "I would not have a problem going public as long as I have control of the creative rights of the company." The clothing house specialises in 100 per cent Italian Linen and is a constant fixture on Caribbean FashionWeek and in retail stores across the island.
"I would do it to increase revenue, because in terms of production we are ready," Edwards said. However, the same is true all around. "I would definitely do it, but I would have to be more educated about it."
The situation is a bit different at Future Services, a legal funding and litigious support company. Future Services assists Jamaicans who have good civil cases pursue legal action by providing financing support. They also provide a database of lawyers and legal support services that tell clients about, among other things, the availability of specialist attorneys, their qualifications, years of experience and fees.
Yaneek Page, General Manager of the company, says she has already begun the process of getting information on the possibilities of listing on the Junior Exchange.
"I just came from a meeting with a financial advisor regarding the Junior Stock Exchange and the possibility that might exist for my company with a potential listing," she told CBR. I just started the process of information gathering, looking at the potential of the company and the strategy in terms of what we will need to do to pursue a listing.
"I saw it as appealing in terms of the strategy development of the company, the transparency and the legitimacy, the ability of Jamaicans to take an ownership stake in a company that is Jamaican," Page said. "There are many advantages. The most attractive thing about going the IPO route is raising capital. The increased visibility is a significant advantage and the improved corporate governance. Who doesn't want to get a world-class company?"
While Page speaks with conviction about the merits of the IPO, she says the costs which are attached to getting there give her pause. "It is a major hurdle. That is what makes it less attractive for some companies. The costs are very prohibitive," she said.
An IPO would call for the services of an experienced broker/financial advisor, an attorney, an accountant, someone to prepare the prospectus, among other service professionals who will need to ensure that the offering meets legal and regulatory requirements.
Page said her consultation revealed that this would cost her "millions of dollars".
"Most of the service providers in the process charge a percentage of the amount that you are seeking to raise. In many of the cases it's two to three per cent. When you add up everybody's per cent guess what happens?"
What happens can result in approximately $8 million in upfront costs. According to Mayberry CEO, Gary Peart, that is what it cost Access Financial, so far the sole member of the Junior Market, to list. However, he points out, the rewards can be tremendous. "Normally, for the companies that are out there the value that will be created by listing far outweigh the costs associated with it," Peart said.
"You need to calculate that you don't pay any more taxes for five years. Access raised $100 million in its IPO. Assuming the company doesn't grow 5 years of $100 million is going to be saved from the tax break. And this is assuming you don't make a profit. For another 5 years, you will save another $50 million," Peart pointed out. He noted that the $8 million divided over a ten-year period and compared to 10 years of non-tax profit is negligible compared to the significant capital for the business.
Peart says the need for the accountant or the lawyer also serves the company well in the long run. "Any company that's going public people have to know what the value of the company is. Investors have to know that what is there actually exists," he says. "So you need the accountant to prepare good financial records. Once the lawyer signs on it you can take that to the court," he says.
The need for competent representation is also a fact that Peart says should not be taken lightly because of the costs. "I provide a particular service. I know the service I provide and I charge accordingly," Peart says. "Mayberry is the number one stockbrokerage firm in Jamaica. We have investors across every different asset class. Not everybody has the access that we have. To have an experienced brokerage firm such as Mayberry, there is a cost associated with that as well," he said. "There is just a fundamental cost associated with it."
For those who need additional information on the Junior Market, The Jamaica Stock Exchange website is a valuable source as well as brokerage houses such as Mayberry.
ALICIA ROACHE Business Reporter roachea@jamaicaobserver.com
Friday, December 18, 2009
LISTING on the Junior Jamaica Stock Exchange (JSE) is seen as a viable option for raising capital to finance the growth and expansion of small and medium-sized enterprises (SMEs). In Jamaica, the Junior Market, a stock market attached to the existing JSE main market, is designed for the benefit of raising between J$50 million to J$500million for these enterprises.
In a forum organised by Mayberry Investments Limited, General Manager of the JSE, Marlene Street-Forrest called for more SMEs to consider listing on the Junior Market in order to benefit from the capital infusion and the attractive tax benefits, including: zero tax in years one to five and half the normal income tax in years six to ten, reduced trading fees and exemptions on transfer tax on shares and stamp duties.
However, while many small businesses seem eager to access the benefits, not many know how the stock exchange works, or even how to begin the process of going to market.
"I think it's a good idea when your company is doing well," said Chris Barrett, CEO of Global Courier Services which lists itself as Jamaica's fastest growing e-Commerce solutions provider. "But I'm not 100 per cent familiar with investments and how they work, especially in Jamaica" he said. "I would have to be more educated about it. However, if a company is doing well and is willing to go public and there is enough interest out there for an investor, then it's a good idea."
The hotel and tourism industry has suffered following the global financial crisis, with some resorts having to lay off staff and suspend operations in the hope of a future turnaround. The reduced cash flow has placed pressure on the companies to stay viable. However, when demand turns around, there may still be a challenge in getting the non-traditional companies to market. President of the Jamaica Hotel and Tourist Association (JHTA) Wayne Cummings said that while going public is a viable one, "It's not an avenue that has been floated properly in the sector".
"The hotel owners have a very proud record, correct or not, of being independent. I think it's something that would have to be taken to them and sold to them. The Jamaican hotel industry has for a long time been about 100 per cent ownership," Cummings said.
The issue of relinquishing control was a point of departure for some business owners at the Mayberry forum, with presenters pointing out that control would not be given up, and that going public means more accountability on the part of the owners, who can maintain majority shares in the company.
"It is actually a viable thing. There are persons who will take their money and invest in this stock exchange, but whether they are prepared to go to market is another thing altogether," Cummings said.
He argued for greater education about the sector and offered to be a facilitator of the process if the stock exchange is willing to begin the sensitisation exercise. "They would have to come and sell what they have. I think we probably need to be educated. I would facilitate them and have them come and speak to our council," Cummings said.
Noted Menswear designer Bill Edwards, CEO of the fashion house of the same name, says he would also value the to opportunity to "get some extra cash" for his growing business.
"I don't know much about the stock exchange but it's something that we have thought of," he said. "I would not have a problem going public as long as I have control of the creative rights of the company." The clothing house specialises in 100 per cent Italian Linen and is a constant fixture on Caribbean FashionWeek and in retail stores across the island.
"I would do it to increase revenue, because in terms of production we are ready," Edwards said. However, the same is true all around. "I would definitely do it, but I would have to be more educated about it."
The situation is a bit different at Future Services, a legal funding and litigious support company. Future Services assists Jamaicans who have good civil cases pursue legal action by providing financing support. They also provide a database of lawyers and legal support services that tell clients about, among other things, the availability of specialist attorneys, their qualifications, years of experience and fees.
Yaneek Page, General Manager of the company, says she has already begun the process of getting information on the possibilities of listing on the Junior Exchange.
"I just came from a meeting with a financial advisor regarding the Junior Stock Exchange and the possibility that might exist for my company with a potential listing," she told CBR. I just started the process of information gathering, looking at the potential of the company and the strategy in terms of what we will need to do to pursue a listing.
"I saw it as appealing in terms of the strategy development of the company, the transparency and the legitimacy, the ability of Jamaicans to take an ownership stake in a company that is Jamaican," Page said. "There are many advantages. The most attractive thing about going the IPO route is raising capital. The increased visibility is a significant advantage and the improved corporate governance. Who doesn't want to get a world-class company?"
While Page speaks with conviction about the merits of the IPO, she says the costs which are attached to getting there give her pause. "It is a major hurdle. That is what makes it less attractive for some companies. The costs are very prohibitive," she said.
An IPO would call for the services of an experienced broker/financial advisor, an attorney, an accountant, someone to prepare the prospectus, among other service professionals who will need to ensure that the offering meets legal and regulatory requirements.
Page said her consultation revealed that this would cost her "millions of dollars".
"Most of the service providers in the process charge a percentage of the amount that you are seeking to raise. In many of the cases it's two to three per cent. When you add up everybody's per cent guess what happens?"
What happens can result in approximately $8 million in upfront costs. According to Mayberry CEO, Gary Peart, that is what it cost Access Financial, so far the sole member of the Junior Market, to list. However, he points out, the rewards can be tremendous. "Normally, for the companies that are out there the value that will be created by listing far outweigh the costs associated with it," Peart said.
"You need to calculate that you don't pay any more taxes for five years. Access raised $100 million in its IPO. Assuming the company doesn't grow 5 years of $100 million is going to be saved from the tax break. And this is assuming you don't make a profit. For another 5 years, you will save another $50 million," Peart pointed out. He noted that the $8 million divided over a ten-year period and compared to 10 years of non-tax profit is negligible compared to the significant capital for the business.
Peart says the need for the accountant or the lawyer also serves the company well in the long run. "Any company that's going public people have to know what the value of the company is. Investors have to know that what is there actually exists," he says. "So you need the accountant to prepare good financial records. Once the lawyer signs on it you can take that to the court," he says.
The need for competent representation is also a fact that Peart says should not be taken lightly because of the costs. "I provide a particular service. I know the service I provide and I charge accordingly," Peart says. "Mayberry is the number one stockbrokerage firm in Jamaica. We have investors across every different asset class. Not everybody has the access that we have. To have an experienced brokerage firm such as Mayberry, there is a cost associated with that as well," he said. "There is just a fundamental cost associated with it."
For those who need additional information on the Junior Market, The Jamaica Stock Exchange website is a valuable source as well as brokerage houses such as Mayberry.