Dennise Williams, Staff Reporter
Michael Lee Chin: "Buying fixed income investments and rolling them over is not investing!" - Winston Sill/Freelance Photographer
"HIGH INTEREST rates have killed the entrepreneurial and business expansion potential of Jamaica," chairman of the National Commercial Bank, Michael Lee Chin passionately asserts.
Mr. Lee Chin was speaking at last Wednesday's Corporate Finance Seminar at the Terra Nova Hotel which was organised by NCB Capital Markets (NCBCM).
Essentially, the brokerage
firm presented the audience with different options available to unlock the Jamaican capital market.
However, there were two important underpinning themes of the evening.
For companies, the NCBCM team claimed that the stock market is not only for cash strapped companies. It was a dynamic market that can provide opportunities to unlock company value.
On the other hand, investors need to watch for the myriads of options on the horizon, as the days of focusing on fixed deposits were over.
Equities provide opportunity for growth
Mr. Lee Chin chided, "Buying fixed income investments and rolling them over is not investing!" He continued, "The Government is committed to low interest rates. Rates have come down to the point that you are behind inflation after taxes."
INEVITABLE PLACE
And so Mr. Lee Chin informed the audience that the equities market was the inevitable place to look to for growth.
He stated: "On the supply side, there are pension funds overweighed in fixed income. And at an interest rate of 20 per cent, they could meet their actuarial obligations; but not at eight to 10 per cent. And as interest rates remain low, what we will see is local pension funds getting back into equity. And that is what entrepreneurs need equity."
This is where NCBCM managing director, Christopher Williams presented the reasons why entrepreneurs should seek capital from the equities market.
"There is a misconception that companies that are profitable and privately held should not list on the stock exchange because they don't need the money. That couldn't be further from the truth."
Mr. Williams then presented four important reasons why companies should consider the equity side of the capital markets.
"First, there is the ability to manage your taxation exposure. When you are a private company, you cannot take money from the company directly or through intercompany loans without facing taxes. When you list, this allows you to upstream money to the parent company, tax free."
Essentially, with dividends attracting no tax, listed companies have a 33.3 per cent advantage over private companies when it comes to the distribution of funds to shareholders.
Mr. Williams continued, "All one would have to do is allow the participation of employees to meet the Jamaica Stock Exchange requirements."
Another benefit from listing outlined by Mr. Williams is, "you cement yourself in the eyes of regulators. For example, Jamaica Public Service is a monopoly that is subject to re purchase for national interest. If it was widely held, as a listed company, the likelihood is less because it would be seen as a Jamaican company."
Mr. Williams then pointed to another important benefit of being a listed company. "The market gives a proper valuation of your company. Once you are doing your job right, the market gives a premium value to your company."
And finally, he states that listing, "is a way to build your brand and enhance your image. Becoming a listed company will strengthen your corporate profile and garner recognition as a leader in the marketplace."
In the last five months, NCBCM has raised $9 billion on the capital markets for several entities. The firm partners with brokerage firms within the region to widen the pool of equity that it can tap into.
The seminar on Wednesday is the first in a series hosted by the NCBCM Corporate Finance Team to sensitise the market of the opportunities available.
