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Election revives hope for junior stock listings

Published:Sunday | February 28, 2016 | 12:00 AMSteven Jackson
A section of the complex housing the Jamaica Stock Exchange at Harbour Street, Kingston.

Four companies are currently vying to list on the junior arm of the Jamaica Stock Exchange (JSE) before the end of March in order to beat the closing of the tax-incentive window.

The change of the political administration, however, raises the issue of whether these companies now need to rush to meet that timeline. This, as the Jamaica Labour Party (JLP) has pledged to restore and continue the tax incentive in its manifesto and to do it immediately. It's the No. 2 commitment on the JLP's 10-point plan, right behind the ultra-popular promise to raise the ceiling on tax-free income to $1.5 million.

The JLP justifies the junior market subsidy as supporting job creation. The JSE welcomes the commitment to extend the window, saying it will result in additional listings while also boosting GCT and payroll taxes.

"I have no reason to doubt that they will keep their commitment," said JSE general manager Marlene Street-Forrest in an interview with Sunday Business on Friday.

"We at the JSE have never been one to wait on our fate, but there will be no lobbying as the incoming Government has seen the benefits of the junior market and we look forward to work with them."

Street-Forrest disclosed that the outgoing Simpson Miller administration had planned to replace the tax incentive with an unknown alternative in the 2016-17 Budget.

"We were told that in replacing the tax incentive that there was something in the Budget. So there was uncertainty as to what that something is. But the party that will form the next Government has informed publicly that the incentives will remain. This is good for the market and the country at large," said Street-Forrest.

JSE deputy general manager Robin Levy adds that the incoming Government needs to formalise the continuation of the tax incentive early, due to the closeness of the March deadline. As a consequence, he encourages companies in various stages of listing to proceed as if the deadline is intact.

"It makes every sense to continue. We know of at least four companies trying to get in before March," said Levy on Friday. He contextualised that for years the JSE lobbied various stakeholder groups, including the outgoing PNP administration to keep the tax-incentive, arguing that it offered tax positive benefits to the State.

The junior market, which started in 2009, now has 25 listings. It uses a tax break to entice privately held companies to float their shares on the stock market. As a result, its proponents argued that companies expanded and increased staff over the years, which resulted in higher GCT and payroll taxes to the Jamaica Government, despite forgoing income tax. Opponents argued that it allowed companies an easy way to raise capital and gave them a buffer against taxes, while keeping most of the ownership within the hands of company heads and family.

Levy said the plan to terminate the tax incentive window was not a conditionality of the country's most prominent creditor, the International Monetary Fund (IMF), but rather the outgoing Government.

"The IMF said that they didn't have any problems with the junior market incentives," he said, while noting that JSE data consistently shows that the junior market is tax-positive, in that it forgoes income tax initially, but results in a gain in GCT and payroll taxes.

The JLP manifesto speaks to a commitment to "immediately restore the benefits at the Junior Stock market to grow equity financing for start-up and expansion of small to medium businesses".

Gary Peart, chief executive officer of Mayberry Investments Limited, the brokerage that has brought most of the junior companies to market, says it remains an unknown whether the JLP intends to revert to the original 10 years of tax relief or the revised five years currently in effect.

"If it's the original 10 years, then it will result in more listings, but if it's the five-year plan, then it will result in few. You can just look back at the number of companies that listed under the 10-year plan and the small numbers since that listed under the five years of relief," Peart reasoned in a telephone interview on Friday.

The junior market originally offered five years of full income tax relief with an additional five years in which the waiver would reduce to 50 per cent.

The adjustment in 2014 reduced the incentive for new listings to just five years of full tax relief.

JMMB Group, which operates a large securities dealership and brokerage, expressed approval at the plan to continue with the incentives.

"We believe that restoring the tax incentives of companies that choose to list on the junior market would be a move in the right direction. As such, a move will be of great benefit to the local capital markets," said CEO Keith Duncan. "We are of the view that stronger capital markets will ultimately lead to improved macroeconomic performance, and is a key facilitator of economic growth. Our local junior market, since its inception, is filled with success stories of companies that have experienced notable growth as a direct result of their listing," he said.

The junior market was established as a result of the collaborative efforts of the Government, the board of the JSE, the Financial Services Commission, and financial sector representatives. It was implemented under a former JLP regime.

The latest company aiming to list is IronRock Insurance, a start-up launched by William McConnell and Evan Thwaites, whose prospectus warns that it expects to meet the Match 31 cut-off for the tax incentive, but makes no guarantee that it will.