Fri | Jun 22, 2018

Takeover rule changes lag, dealers against change

Published:Friday | January 5, 2018 | 12:00 AMNeville Graham
Steven Gooden, president of the Jamaica Securities Dealers Association.
JSE Managing Director Marlene Street Forrest.
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The Financial Services Commission (FSC) proposed changes to stock market takeover rules that would have reduced the threshold required to trigger a mandatory buyout offer.

But two years later, the agency is still 'researching' the issue, having sought feedback from the market, and is giving no indication as to when it actually plans to come to a decision.

Stockbrokers have indicated that they are against the proposal.

The current rules require that firms acquiring a company listed on the Jamaica Stock Exchange must make an offer for all shares in the target company, once ownership rises above 50 per cent.

However, the FSC proposed back in January 2016 that the trigger should be adjusted to 30 per cent, which would align Jamaica with the rule in the sister market of Trinidad & Tobago and some other jurisdictions.

It would require amendments to The Securities (Take-Overs and Mergers) Regulations 1999 and the Securities (Disclosure of Interest) Regulations 1999.

For the Jamaica Stock Exchange, JSE, the proposal aligns with its goal of deepening market penetration beyond the 190,000 individuals and institutions estimated to be stock market investors

"The Jamaica Stock Exchange provided its feedback. However, in order to have a more comprehensive response to this question, it may be necessary to have dialogue with the FSC," said JSE Managing Director Marlene Street Forrest regarding the adjustment to the takeover rule.

The FSC was even more economical with its words.

"All we can say at this time is that we are still conducting research to inform our final recommendations," said FSC spokesman David Geddes, while not commenting on a timeline for that decision.

The Jamaica Securities Dealers Association, JSDA, wants the existing threshold to remain in place.

Explaining the group's position, JSDA President Steven Gooden said the 30 per cent threshold usually exists where the markets are developed with listings of large companies and broad investor pools. Jamaica is not at that level yet, he said.

"The capital markets and investor pool in Jamaica is nowhere as broad and deep

to facilitate the smooth implementation of the lower threshold," Gooden said. Jamaican listed companies are small by global standards and the available pool of capital is, for the most part, concentrated, he told the Financial Gleaner.

The JSE itself is still weighing the plan to increase the percentage of shares that are available to the general public through "the introduction of new companies to the market for which investors can participate," according to Street Forrest.

Market rules require that companies listing on the Jamaica Stock Exchange must float at least 20 per cent of the company, but there has been talk in the past to increase that to at least 30 per cent.

Typically, the initial public offerings (IPOs) that come to market set aside less than 10 per cent of their float for the general public. A noted exception was Stationery & Office Supplies Limited, which assigned more than half of its IPO share allotment to the general public over the summer.

Street Forrest says any consideration to increase shares for public subscription "has to be grounded by other factors, such as the willingness of companies to participate or list if an increase is considered, and also the international best practice".

The exchange plans further talks on the issue within the new year "after which a decision will be taken," she said.

The JSE has been making headway with attracting new listings, which means more opportunities for the public to buy stock - whether via IPO subscriptions and the floating of preference shares.

Last year, the JSE recorded 15 new listings, across the junior, USD and main markets.

The additional listings, and bullish investors have pushed stock market wealth in Jamaica to $1.1 trillion, or less than US$9 billion.

Trinidad's market is valued at TT$124.6 billion, or US$18.5 billion. The listings on the All-T&T Index alone are worth more than US$12 billion.

neville.graham@gleanerjm.com