7 months ago
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Market reaction to the increase in the amount of share capital that junior company can raise and hold has been positive, but up to early Thursday, but the Jamaica Stock Exchange itself is yet to weigh in.
The cap will rise to $750 million, from $500 million, it’s first adjustment in the junior market’s 14-year history.
Clarke said on Thursday that both new listings and the companies already on the market would benefit from the increase.
Currently, there are 48 junior stocks on the market, but two of them that are currently in breach of the $500m cap are to migrate to the main market on March 27, bringing to six the number of juniors that have graduated since the end of 2018.
Of the six, only three had breached the threshold, Financial Gleaner records show. The others migrated for different reasons, including opportunities to raise fresh equity capital without restriction.
Ryan Strachan of GK Capital Management Limited is among those in favour of the increase. But he also believes the government did not go far enough.
“The new threshold will allow companies earning pretax profits in the $200-million to $300-million range to list on the junior market without selling at a heavily discounted multiple.”
“I therefore welcome it, and think $1 billion should be considered in short order,” said Strachan, who is GK Capital’s vice-president of investor relations. “That aside, it will also allow companies already listed to return to the market for funds, whether via an APO or rights issue,” he commented. Such transactions deal with the issuance of new shares and lead to increases in a company’s capital.
Mayberry Investments Limited, which holds the record for bringing the most junior companies to market, described the increased threshhold as “a positive”, but CEO Gary Peart did not offer an opinion on the likelihood of movement towards listings by companies that are still waiting to make a final call on going public.
Initially, it wasn’t clear to all whether the new cap would have benefited companies that are already listed.
The change in policy was announced Tuesday by Minister of Finance Dr Nigel Clarke, but in its review of the presentation of the country’s 2024-25 Budget, audit and advisory firm PricewaterhouseCoopers Jamaica opined that the minister’s reference to new listings leads to the “inference” that existing listings would remain at the $500-million cap.
However, on Thursday, the finance minister said definitively that all companies qualified and that all previous conditions remained the same.
“Nothing has changed,” Clarke told the Financial Gleaner.
Energy solutions company FosRich, which listed in 2017, is one of several companies on the verge of breaching the current share cap.
The company, which wants to do an additional offering of shares via the junior market, is getting ready to huddle and decide on its next move given the new possibilities that the raised cap offers, said CEO Cecil Foster.
FosRich is seeking fresh capital to expand. On Wednesday, Foster, who described the advent of the junior market as a godsend for companies such as FosRich, said they would now weigh the ways in which both present and prospective shareholders can buy into the company.
“I’m not saying that this is the way that we want to go, but we can look at it; we can caucus as a team and look at it to see where we go from here,” he said.
FosRich’s share capital at September 2023 was precisely $500 million, leaving it with no room to play under the current threshold. Its December earnings report is still pending. But already the minister’s announcement has changed the calculus for the energy solutions company.
FosRich last raised $139 million in equity from a rights issue last year, and has stated its intention to pursue an APO this year. In the meantime, the company recently turned to JN Fund Managers to raise $900 million in debt financing for its expansion into Guyana.
There are still two stocks on the junior market whose share capital is currently above the $500m threshold. One of them is trading company Derrimon, but it is a special case, having received a waiver from the Jamaica Stock Exchange on its takeover of another junior market company in 2016. The other is digital marketer iCreate that’s currently suspended over breaches of market rules. No specific reference was made to the breach of the cap, which came after a debt-conversion transaction executed by iCreate.
The JSE junior exchange, which targets small and medium enterprises, launched in 2009 with microlender Access Financial Services as the pioneer stock. In all, there have been five stocks that have seen their share capital rise above $500 million over the junior exchange’s 14-year run.
The junior market listings are currently capitalised at around $187 billion, but that will fall with the pending migration of two Lasco stocks at month end. Juniors are less than a tenth of the $2-trillion JSE combined market but match the main market in terms of the number of listings.
The junior exchange grew rapidly because of the tax incentives granted by the Jamaican government. For the first five years of listing, the company pays zero income tax. That narrows to a 50 per cent waiver for the next five years. But the company has to stay listed for at least 15 years, otherwise the authorities would claw back the foregone taxes.
The ministry paper tabled by Minister Clarke on Tuesday indicated that the new cap would be ‘revenue neutral’.
The 15-year listing period and 10-years of tax breaks remain intact.
The leadership of the JSE did not provide an immediate reaction to the policy change. The Financial Gleaner understands that there are behind-the-scenes consultations aimed at getting more clarity on the measure from the finance ministry.
neville.graham”gleanerjm.com
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