By Dennise Williams, Staff reporterMANY INVESTORS lament the lack of new companies
coming on to the Jamaica Stock Exchange (JSE).
Christopher Chin Loy, account executive of Mayberry Investments Limited states, "The bull run experienced in the market has sharpened investor's appetite for stocks. The right companies would find a good reception from the marketplace."
And it is not just investors who are interested in an expanded JSE. The companies themselves have been making queries to brokers as to the viability of an initial public offering (IPO). "We have been getting queries. I would say that there is a definite interest, but it is a question of timing," said Leo Williams, managing director of JMMB Securities.
Chin Loy added, "over the last year, companies have called up our office to say how can we go public. Even we (Mayberry) are considering going public. That shows the economy is improving."
Indeed, at least two entities have come out and stated that an IPO is a definite possibility. In a previously published report, Minister of Commerce, Industry and Technology, Phillip Paulwell, said the Government was considering floating Petroleum Company of Jamaica (Petcom) shares on the local stock market. "One of the options we are looking at is listing the company on the JSE. I have asked the board to look at that option."
Executives at Grace, Kennedy & Company have also expressed intentions of an IPO for one of their subsidiary companies. Speaking at a media conference on April 1, Don Wehby, chief financial officer of Grace and chief operating officer of the Financial Service Division, said First Global Bank would be listed on the JSE to "raise additional capital during 2005."
But the question must be asked: why haven't more companies listed? "I think that there is a lack of information about the relative benefits of listing, said Williams, "It used to be that a lot of private business owners were not confident the market would value their company fairly. That is not the case now." Chin Loy states, "Many companies are not listed because owners of firms don't like to give up control."
And yet, the reasons to list can be compelling. "Why list?" asked Williams. There are many reasons, such as raising capital, improved liquidity of shares, diversification of the investor base and maybe to increase visibility." Other benefits Williams outlined were:
Expanded access to capital
Stock options for employees
Shared ownership
Increased opportunities from
marketing
Company's name among the elite those who have met the hurdles and the requirements of the Financial Services Commission and the JSE.
However, Chin Loy sees the reason to list in more succinct terms: "Companies would come to the market for expansion funds or to retire to debt."
But what about the cost to list on the stock exchange? Financial experts believe it can cost anywhere from three to four per cent of the equity being raised. However, Williams believes the monetary cost is the least concern. "The financial cost is not really important or high, the main concern is to maximise shareholder value." While not going into numbers, Chin Loy says that, "Off the top of my head, the cost involved in going public:
Commissions paid to brokers
take the company public
Registrar
Marketing costs to make
people want to buy the stock
Regulatory fees charged by
the JSE
And with that said, the Financial Gleaner put forward to the experts the names of a number of well-known companies and asked them what they thought of the company's prospects to list. We note that with the exception of Mega Mart and Supreme Ventures, none of the companies mentioned have made any public announcements of intentions to put forward an IPO.
ISLAND GRILL
Chin Loy: "I think that listing would be good in a nationalistic sense. The concept did not work in the United States, and that will not look good to your investors, but Thalia Lyn has said that she would expand into the Eastern Caribbean. She could raise funds to do that."
Williams: "Island Grill is a good brand, but listing depends on what the financials look like. It has a good product, good delivery system, and has name recognition. The company has a proven track record in Jamaica. The management is perceived to be responsive to investors."
PAYMASTER
Chin Loy: "Great idea. It would be easy money. The stock will do well with investors, but what does Paymaster need money for? They could increase technology, have more branches or even get into banking. In fact, opening a bank makes sense because they collect fees but still have to lodge money into a bank. But it won't be easy to start a bank from scratch, it would make more sense for Paymaster to buy an existing bank the way Dehring, Bunting & Golding did."
Williams: "Paymaster has brand name recognition. But the financials are very critical. The stock would be viewed as a growth stock, so people would want to know what type of growth and earnings the firm would achieve over the next few years."
MEGAMART
Chin Loy: "They have indicated that they intend to go public. And it is the right idea. Remember, that when you do an IPO, you are buying the assets of the company. So Gassan Azan is waiting to have additional stores across the island."
Williams: "That's a tricky one. I think the company is fairly new. The concept of superstores in Jamaica has yet to be broadly understood. More informed business people might understand the prospects for growth more than the man on the streets."
SUPREME VENTURES
Chin Loy: "Great idea! They have indicated they are considering an IPO. However, I don't think that it will be a widely held company because the current major shareholders would probably buy back the majority of the publicly listed shares. Still, I don't think that the shares will be as tightly held as Palace Amusement. However, does Supreme Ventures need the money? I don't think they do, as they are a cash rich company with no debt. Still, a good reason to list would be a nationalistic reason. They would be giving Jamaica a piece of the company."
Williams: "Ah! That's an interesting one. That one has some really good momentum. They are well regarded both here and overseas in terms of their business model and management. The business model has been proven."
AIR JAMAICA
Chin Loy: "A company of that magnitude should go public. An IPO would help to alleviate its debt burden. It would also be a nationalistic gesture in the way BWIA is listed in Trinidad & Tobago (although that stock does not do well). However, I know this stock would do well because in March of 2004, the airline came to the market with a private issue. The US$15 million three-year bond carried a coupon rate of 9.75 per cent. Although it was a taxable bond, the market was very receptive and the bond sold off in hours."
Williams: "The stock would do really well, especially among oversees Jamaicans. Again, their financial story will be the key. Even though they carry high debt, airlines in general are going through tough times and are cyclical in nature. But Air Jamaica has the patriotism factor. Even so, the question of revenue still must be answered.
I am fairly certain they will have passenger revenue, but in terms of profitability per passenger mile, that will be the challenge."
TASTEE PATTIES
Chin Loy: "It may suit Tastee to do an IPO. The company already franchises some of its stores, which is a form of public shareholding. If it went public, it would be a good idea in the form of continuity."
Williams: "That would be excellent. People can see and feel the product and demand for patty is fairly strong. The company has a huge distribution channel. And the company is fairly efficient. The fast food sector is represented on the Trinidad & Tobago stock exchange, and has done well. Tastee could use that model."
SUPERPLUS STORES
Chin Loy: "They are certainly big enough to float their shares. The reports are that Superplus surpasses Courts in retail sales. So absolutely, they should list. But they are a tightly knit family so they might not want to do an IPO. But with a brother like Michael Lee-Chin, hey, it could happen. In my opinion, without seeing their books, they would only want to list if their debt levels rise."
Williams: "Food retailing is competitive. The story will have to be well told, in the sense that the brand will be strong, with consistent growth going forward. They will have to make a strong case of profit and continued profits within the landscape of
addition competition."
CAPTAIN'S BAKERY
Chin Loy: "This company is not wide enough. They only have three locations in Jamaica and even with the location in Cayman Islands, it is not a large enough company. I am not convinced that the company has enough infrastructure to be listed on the JSE."
Williams: "Don't know much about that company, so I can't comment."
GOVERNMENT ENTITIES JAMAICA PUBLIC SERVICE, NATIONAL WATER COMMISSION
Chin Loy: "It makes sense for these companies to list. There are already regulatory controls in place to prevent price gouging."
Williams: "They would be excellent. The possible investors would know the product quite well. It is just a question of how efficient that they could be."
THE JAMAICA OBSERVER
Chin Loy: "If people were willing to buy Gleaner shares, then they would buy Observer's stock."
Williams: "It would be good for the market, in the sense that it increases the independence of the ownership of the newspaper. That can't hurt. Investors would buy because they believe that the communications section is a strong sector."
MAJOR HOTEL CHAINS SUPERCLUBS & SANDALS
Chin Loy: "These shares would do well internationally. Look, Cibony did well when it started up. So people will buy into the hotel chain sector."
Williams: "I think the market would respond very well, but I'm not holding my breath on that one. It is a very significant part of the economy and not represented on the JSE. Pegasus is more like a local and business hotel, not a tourist hotel."
BAUXITE COMPANIES
ALCAN, ALCOA, WINDALCO
Chin Loy: "Most of those companies have shareholders who are listed overseas. I don't think the Government could take their stake public. Industries are hard to take public. Manufacturers of aluminum are usually the ones who own the mine, so I'm not convinced it would be an attractive investment to local investors."
Williams: "The market would respond positively to any bauxite firm that lists. Even with the reports in the news that there are only 50 years worth of reserves, that is a long time. In fact, even 20 years is long. During that time, the company would change or modify its business plans. It could do more processing, railing, shipping or management of the mineral. All kinds of things can happen in 50 years."
