President Uhuru Kenyatta visited Jamaica about five months ago, I quickly took a look at the country’s stock market. Admittedly, I was pleasantly surprised.
The Caribbean nation has so much going on; the share of Jamaicans with brokerage accounts is more than 10 percent (up from less than five percent just a decade ago), Jamaican stock exchange is the world’s best performing stock market over the past 12 months after gaining 35 percent (it’s up over 600 percent during the past five years) and it managed to sell Sh81 billion bonds at a yield of just 5.8 percent in the month of September.
From a market standpoint, this is incredible. My focus is on its successful Junior Stock Exchange (JSE) with an emphasis on lessons we (read: NSE’s Growth and Enterprise Market Segment Gems) can adopt.
A quick background; Jamaica has operated the junior market since 2009. As of January 2019, it had 37 listed companies, including firms in sectors such as manufacturing (these sector accounts for 61 percent of companies on this board), retail, financial services, tourism, and logistics.
Five of the listed companies are now positioned for regional expansion. Companies desirous of listing on the junior market must do so via an IPO, requiring the issue of a prospectus. Moreover, a company must have a minimum of 25 shareholders controlling not less than 20 percent of the issued share capital. The shareholder’s equity of the company following the capital raising activity outlined in the prospectus shall not be less than Sh35 million and shall not exceed Sh350 million. That said, here are the considerations. One is the fee issue. Listing fees — initial listing fee, an annual fee and supplementary fee — at the JSE are set at 50 percent lower than comparable listing fees on the main exchange. This is a crucial takeaway considering that most potential Gems listings have expressed the need to make the listing process cost efficient.
It’s important that the Gems market is regarded as Small Medium Enterprise (SME)-friendly from a cost standpoint. Other costs that also need a reconsideration are compliance costs — nominated adviser (Nomad)-fees, reporting fees etc.
Two is the graduation issue. At JSE, SMEs are permitted to list on the market for up to 10 years (split into two-five-year stages) or until surpassing a maximum shareholder’s equity capital capitalisation.
If a company exceeds this maximum shareholders’ equity capital capitalisation, then it is automatically graduated to the main JSE board. Comparably, Gems has no hard-rule to force a “graduation”. This means “grown-up” companies may choose to not to graduate onto the main board (a likely strategy to enjoy a less-stringent listing environment).
Three is a tax issue. The Jamaican government has given a tax incentive for an allowable period not exceeding ten years from the date of listing. If the company delists within 15 years of being listed on the combined Junior & main exchanges, it will be required to repay the government the tax benefits enjoyed during this period. This is self-explanatory and is a good initiative worth adopting.
Of course, there are no silver-bullet solutions. Nonetheless, Gems can learn from best-practice so as to encourage domestic investment in entrepreneurship, employment and economic development.