Sat | Nov 28, 2020

Editorial | Leverage Wigton model for a broader purpose

Published:Thursday | May 30, 2019 | 12:00 AM

The success of the Wigton IPO provides the Government with a model not only for offloading other state-owned assets, but how it might creatively use some of these divestments to attract, and keep, public-sector talent, even as it undertakes reforms and keeps its wage bill in line.

That the offer was oversubscribed by more than one and a half times is one measure of its success, although that, in part, highlights that there is a lot of money swirling around Jamaica in search of profitable investments. That bodes well for the economy.

But nearly as significant is the number of persons who bought the Wigton shares. According to the Jamaica Stock Exchange (JSE), there were 31,200 purchases of the shares, four times the previous record for an initial public offering (IPO). Critically, nearly 12,000, or approximately 38 per cent, were first-time stock purchasers, or holders of accounts on the JSE. A large chunk of that cohort, we expect, would be among the 7,700 public-sector employees who took up the offer.

This development is a move in the direction of what Prime Minister Andrew Holness called his Government’s policy of socialising wealth, but which we classify as a step towards broadening what is now a narrow share-ownership class. There are not much more than 200,000 equity accounts at the JSE, which likely translates to substantially fewer actual investors.

The Government’s message should now be that it doesn’t take great wealth, or high social status, to invest in stocks and to earn from them. In that respect, the structure of the Wigton IPO came close to the ideal. The J$0.50 a share for 11 billion stock units that came to the market was a price at which people with little money and unaccustomed to investing in stocks felt psychologically comfortable to have a flutter. Investing as little as J$5,000 could start a portfolio of 10,000 shares.

Less than average earnings

It helped, too, that the price, a multiple of 6.6 times 2018 earnings, was not only less than half of the average price-earnings ratio on the market, but in the view of many analysts, a discount of up to 90 per cent of the company’s own projected short-term earnings. In other words, there is room for Wigton’s share price to rise, delivering capital gains as well as dividend yields to investors. Their purchase won’t be a bad experience for new investors.

The Government, in the circumstances, has cause to be confident about the future IPOs, assuming that the firms to be divested have decent balance sheets and are reasonably priced. Here is where we see the sales of state-owned assets being leveraged to the value of the public sector. Part of the problem of keeping the best talent in the public service is the Government’s inability to pay competitive salaries, especially during a period of fiscal containment and Jamaica’s agreement with the International Monetary Fund to keep the public-sector wage bill to within nine per cent of gross domestic product. It is possible, in the circumstances, to design schemes that offer some public-sector employees stocks in lieu of higher wage hikes, while taking into account the risk factors associated with markets. This idea is workable and ought to be given serious consideration.