Tap­ping the cap­i­tal mar­kets, one way to be­come a cor­po­rate Olympian

Jamaica Gleaner - - IMF TRACKER - Dy­lan Coke Dy­lan Coke is Vi­cePres­i­dent — Orig­i­na­tion & Cap­i­tal Mar­kets at Sco­tia In­vest­ments Ja­maica Lim­ited. dy­lan.coke@sco­tia­bank.com

WIT­NESS­ING THE feats of Ja­maican ath­letes at the XXXI Olympiad re­minds us of Ja­maica’s abil­ity to pro­duce ex­cep­tional per­for­mances.

But there’s an­other area in which Ja­maica out­per­forms. It may sur­prise you to know that Ja­maica has prob­a­bly the most ac­tive and well-de­vel­oped cap­i­tal mar­kets in the Caribbean. By cap­i­tal mar­kets, I re­fer to that part of a fi­nan­cial sys­tem where com­pa­nies raise debt/eq­uity fund­ing, as dis­tinct from loan fund­ing ob­tained from banks.

Ac­cord­ing to the Fi­nan­cial Ser­vices Com­mis­sion, the to­tal value of pri­vate place­ments in Ja­maica climbed from US$191 mil­lion in 2012 to over US$382 mil­lion in 2015.

Note that this num­ber cap­tures only pri­vate place­ments where com­pa­nies raise fund­ing from small groups of in­di­vid­ual/ cor­po­rate in­vestors. It does not cover many other types of cap­i­tal mar­kets trans­ac­tions, in­clud­ing ini­tial public of­fer­ings on the Ja­maica Stock Ex­change’s main and ju­nior mar­kets — such as the re­cent tTech and Port­land JSX IPOs; rights is­sues — such as those done last year by Proven In­vest­ments and Sagi­cor XFund; public of­fers for mi­nor­ity shares in listed com­pa­nies — like those done by Dol­phin Dis­cov­ery and Heineken when ac­quir­ing Dol­phin Cove and Red Stripe, re­spec­tively; and sale-and-lease­back trans­ac­tions.

In ef­fect, a sub­stan­tial vol­ume and va­ri­ety of cap­i­tal mar­kets trans­ac­tions are suc­cess­fully done in Ja­maica each year, rais­ing con­sid­er­able amounts of money in the process. That be­ing the case, why aren’t more savvy Ja­maican busi­ness per­sons look­ing to use the cap­i­tal mar­kets as a source of fund­ing?

There are a num­ber of rea­sons, for busi­nesses hop­ing to raise funds, to ex­am­ine the cap­i­tal mar­kets at this time. One is the per­for­mance of Ja­maica’s macroe­co­nomic in­di­ca­tors that have been trend­ing in a pos­i­tive di­rec­tion. In­fla­tion is at his­toric lows, in­ter­est rates have fallen sharply mak­ing the is­suance of debt more af­ford­able, and the pace of de­val­u­a­tion has mod­er­ated.

The Ex­tended Fund Fa­cil­ity signed with the In­ter­na­tional Mon­e­tary Fund in 2013 has helped cre­ate a frame­work for greater fis­cal dis­ci­pline and the GOJ has in­di­cated its will­ing­ness to main­tain a re­la­tion­ship with the IMF once the ex­ist­ing fa­cil­ity ends.

To­gether, these fac­tors help to cre­ate a more sta­ble and pre­dictable en­vi­ron­ment that makes it eas­ier for busi­nesses to plan their fi­nanc­ing needs, and also makes in­vestors more in­clined to in­vest in those busi­nesses, and do so for the long term.

The in­vestors par­tic­i­pat­ing in cap­i­tal mar­kets trans­ac­tions are in need of a va­ri­ety of in­vest­ment types for their port­fo­lios in­clud­ing debt and eq­uity and the many vari­a­tions in-between.

TYPES OF FI­NANC­ING

This cre­ates the op­por­tu­nity for com­pa­nies look­ing to raise money to do so in a va­ri­ety of dif­fer­ent ways. Pri­vate place­ments of debt, IPOs, rights is­sues, sales and lease­back are just a few of the trans­ac­tion types pos­si­ble in the cap­i­tal mar­kets. The beauty of the cap­i­tal mar­kets is its flex­i­bil­ity — that is, its abil­ity to match in­vestors look­ing to tai­lor their in­vest­ments ac­cord­ing to their needs, as de­ter­mined by reg­u­la­tion, risk ap­petite and de­sired yield, to be matched with com­pa­nies look­ing to tai­lor their fundrais­ing ac­cord­ing to their needs, as de­ter­mined by abil­ity to pay, col­lat­eral avail­able, etc.

Work­ing with an ex­pe­ri­enced in­vest­ment bank al­lows you to de­sign a fundrais­ing struc­ture that meets both the needs of the com­pany and the needs of in­vestors in the market.

Cap­i­tal mar­kets in­vestors rep­re­sent deep pools of cap­i­tal. De­pend­ing on the type of in­stru­ment your in­vest­ment banker struc­tures for you, he may ap­proach high net worth in­di­vid­u­als, in­vest­ment houses, in­sur­ance com­pa­nies, mu­tual funds, unit trusts, cor­po­rate in­vestors and/or pen­sion funds who cu­mu­la­tively have large amounts of in­vestable funds. As an ex­am­ple, the pri­vate pen­sion fund in­dus­try in Ja­maica man­ages over $300 bil­lion in as­sets.

GOJ is less ac­tive in the market than it used to be and, as a re­sult of this and other fac­tors, in­vest­ment man­agers are ac­tively look­ing for qual­ity in­vest­ments. Pro­vided the struc­ture cre­ated is at­trac­tive to them, these en­ti­ties are ca­pa­ble of in­vest­ing large amounts of money in your ven­ture.

But don’t let the big num­bers fool you. The cap­i­tal mar­kets are not open to large cor­po­ra­tions only. Many small and medium com­pa­nies have taken ad­van­tage of the favourable tax ad­van­tages of­fered by the ju­nior market to raise funds for their busi­ness. In 2016, al­ready six com­pa­nies have listed on the JSE ju­nior market, rais­ing hun­dreds of mil­lions of dol­lars in the process.

In sum, there are a num­ber of fac­tors which cre­ate an ideal con­text for cap­i­tal mar­kets fundrais­ings, in­clud­ing the fact that cur­rent macroe­co­nomic con­di­tions are pos­i­tive, the means of rais­ing the funds can be tai­lored to spe­cific needs, and there are sub­stan­tial amounts of fund­ing avail­able for com­pa­nies of vary­ing sizes once an ap­pro­pri­ate trans­ac­tion struc­ture has been iden­ti­fied.

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GUEST COLUM­NIST

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