Double Junior Market minimum & maximum capital limits
Wednesday, April 06, 2022
IRREFUTABLE evidence over the last 50 years confirms the Jamaica Labour Party’s (JLP’s) commitment to the development of our local capital markets and specifically, the Jamaica Stock Exchange (JSE).
From its introduction by the late Edward Seaga in 1969, to the launching of the Junior Market in 2009, we have seen a policy position demonstrated and executed through the years regardless of leader or Administration. The returning JLP Administration of 2016 placed the restoration of the Junior Market incentives as priority number one in its 10-Point Plan. This occurred despite the near-death knell sounded by the outgoing People’s National Party (PNP) Administration of the day, and some measure of opposition by erudite stakeholders. The 2016 Holness Administration deserves a ton of credit for its steadfastness and fixity of purpose in ensuring that this objective was materialised expeditiously.
Though this is ground I have covered before, JLP administrations have also divested public sector companies over the past 50 years as it believes in shifting State responsibilities away from driving enterprise towards creating a facilitatory environment. Recent divestment examples include Wigton Windfarm, TransJamaican Highway, whose ownership was transferred to tens of thousands of Jamaican shareholders. Past examples include Mavis Bank Coffee, bought by a PanJam/Jamaica Producers-led consortium, Carib Cement, and National Commercial Bank. All, without exception, occurred under JLP administrations and present a stark contrast to the socialist perspective that promotes state ownership of enterprise and operation thereof. I suppose the major political parties are not the same after all!
It is with strong empirical evidence in mind that that I believe it fitting and appropriate for a revision of the Junior Market limits and an advent of the Micro Stock Exchange.
The Junior Market was launched in April 2009 to fanfare by a nascent retail investor base, and some measure of scrutiny and side eyes by the establishment, especially as the impression given was that it would allow for some larger companies to break themselves up into smaller pieces to get the benefits thereof.
Not true, but nevertheless, the varying sentiments are what make up a market.
We would do well to get used to this state of play as a myriad of new players enter the space and bring their countercultural opinions with them.
While Jamaican dollars may not reveal the extent of the shrinkage of the $50-million lower limit, the case is pronounced when one considers the effect in US dollar terms. This prism is applicable to assets such as real estate, but that’s another story for another day. While inflation is a credible consideration that strengthens the case, we will sidestep it also.
The facts are as follows:
The reality is that JMD/USD depreciation has over 13 years (at varying rates) wiped off 42 per cent of the USD value of the Junior Market IPO fund raises in real terms. While this is not necessarily unique to Jamaica, the powers at be would do well to proactively ensure this incubator of economic growth fires on all cylinders. There are several benefits to increased limits that cannot be ignored. Firstly, retail investors would likely be able to get larger percentages of funds sought and valuations would no longer have to be stretched to have companies go public. Secondly, it is likely that the market and liquidity of issues would be robust given the increased pool of units on offer. Thirdly, companies would not necessarily be forced to ‘graduate’ to the Main Market considering a need for greater equity funding and this could stimulate the economy further.
Lastly, this would give rise to another stock market that I can expound on further.
All being said, I now formally propose that the board of the Jamaica Stock Exchange, double the minimum and maximum stated capital limits from the existing $50 million-$500 million, to $100 million-$1 billion to account for the rate of devaluation and inflation over the past 13 years in the Jamaican economy. I also proffer that this limit be reviewed every five years, if not done already.
One may reasonably ask, ‘whither the companies who may only require $50 million in an IPO based on prevailing market multiples?’ The answer is simply that such institutions would be better suited for a Jamaica Micro Stock Market with a fundraising minimum and of $10 million to $99 million. Problem solved. A Micro Stock Market would allow smaller companies to list at more realistic valuations whilst formalising their operations which will redound to the benefit of all concerned. Let’s get it done!
Ryan Strachan is a Stockbroker and President of Generation 2000 (G2K), the Young Professional Affiliate of the Jamaica Labour Party. Please direct questions and comments to [email protected] or [email protected]