More Money for Junior Market Companies

Companies can now officially raise more money on the Junior Market of the Jamaica Stock Exchange.  Will this cause a rush of new IPOs and possibly APOs?

It’s finally happening. The Government is increasing the market capitalization for Junior Market companies from J$500 million to J$750 million.

The new maximum is just under US$5 million. Market capitalization refers to the value of a company.  It’s calculated by the total number of a company’s share times its share price.

For example, if a company has a million shares, which sell for $5 each, then that company’s market cap is $5 million.

In Jamaica, companies listed on the Junior Market of the Stock Exchange were capped at J$500 million.

This means if a new company wanted to raise more than that amount, they’d have to do it on the main market.

What’s the difference?  Well, junior market companies get great tax benefits, such as not paying any corporate income tax for the first five years.

The junior market was created to stimulate and support small and medium businesses.

So this increase is great news for SMEs! It means that they’ll be able to raise J$250 million, or about US$1.6 million, more from the stock market to grow their business.

In his budget presentation, Finance Minister Dr Nigel Clarke said the cap was instituted in 2016 and made sense for the size of the SME sector back then. 

But that was eight years ago and things and time change.  Inflation has been inflationing, so it’s time to adjust the limit.

But what I really want to know is, will this only apply to new companies, or will companies that are already on the market also have their cap increased?

During Dr Clarke’s presentation, he responds to the Opposition and says ‘yes, for new listings.’ He doesn’t seem sure but if he’s right that means the increased threshold would only benefit companies who list after the change is implemented. 

He said this would take effect for “year of assessment 2024”.  I think that means the same thing as fiscal year 2024, which starts on April 1, but we do need some clarity here.

Now if it only applies to new listings, that eaves the currently listed Junior Market companies with the J$500 million limit. Would that be fair? 

As our Analyst, David Rose explained, the higher threshold would benefit the currently listed Junior Market companies.

“If it applies to all companies, it would give them more space to raise more equity capital. Especially considering the high interest rate environment we’re currently existing in and would be a great lifeline to some companies. But at the same time it still means that more companies are going to see the Junior Market as an attractive route and choose to actually list on the JSE as well,” Rose said.

So this also needs to be clarified. We hope Minister Clarke does so in his closing presentation, or we’ll have to wait for the official framework details to be announced.

In any case, this is great news for companies that want to list on the Junior Market. Because now, not only will they have 10 years of tax incentives but they’ll be able to raise more money. So we could see a rush of IPOs. 

I know market conditions are still not great but this could be the incentive some companies need to take that leap.

And that’s the bottom line.