Tax Incentive Big Boost for Companies on JSE Junior Market

Companies listed on the Jamaica Stock Exchange (JSE) Junior Market are reaping dividends from the accompanying Government tax incentive, which is also generating benefits for the country.

The regime sees the firms benefiting from a 10-year tax break. For the first five years, entities are exempt from paying corporate income tax, but are required to pay 50 per cent of their statutory obligations for the remaining period.

Finance and Public Service Minister, Hon. Audley Shaw, says the benefits are manifesting in areas such as exports and information and communications technology (ICT).

He notes that the 30 entities, representing 34 listed securities, have generated significant equities market capitalisation ranging between $3 billion and $56 billion over the eight years since the junior market’s establishment in 2009, resulting from the sale of shares to the public.

Mr. Shaw says the capital inflows have, for the most part, been channelled by company principals into expanding the entities’ operations, with a number of those involved in manufacturing either venturing into or expanding their export portfolios.

This, he notes, has contributed to boosting Jamaica’s exports out-turn, particularly within the last year.

“So, it is not surprising that in January of this year, we have seen a 31 per cent growth in exports compared with January of last year…moving from US$87 million to US$113 million. You can directly link that to some of the new shoots that are being created in the export sector and, in part, to the establishment of the junior market,” the Minister adds.

Mr. Shaw also lauds ICT firms, such as tTech Limited, for listing on the junior market, which is serving to strategically reposition technology within the economy, citing it as a “key component” in driving the Government’s growth agenda.

The Minister says he is also pleased with ICT stakeholders’ growing interest to contribute to the economy by assisting local manufacturers with the necessary inputs that will better position them to either penetrate or further consolidate their foothold in the export market.

Mr. Shaw notes that by virtue of their listings, the companies have also recorded significant increase in the value of their shares, pointing out that these have averaged 575 per cent over the junior market’s duration.

Notable among these, he notes, are the Lasco Group, Access Financial Limited, Knutsford Express and Paramount Trading “which have grown much more aggressively” than some of the other listings.

The Minister informs that the share prices of Lasco Group’s three divisions have grown by a cumulative 6,300 per cent since their listing in 2010.

Mr. Shaw says Lasco Distributors grew by 2,800 per cent; Lasco Manufacturing by 1,800 per cent; and Lasco Financial Services, 1,700 per cent.

The Group was able to raise over $400 million on the equities market, which assisted in underpinning a major expansion project, inclusive of its $2 billion manufacturing plant in St. Catherine.

Meanwhile, Access Financial Limited increased by 2,600 per cent; Knutsford Express, almost 1,400 per cent; Paramount Trading, 1,100 per cent; and Jamaica Teas, nearly 500 per cent.

While acknowledging the growth recorded by the JSE’s main market, Mr. Shaw says the junior market is holding its own.

“We continue to outshine many other jurisdictions globally, in terms of our (main) stock market. Under the stewardship of Managing Director, Marlene Street-Forrest, and her team, the stock exchange was rated the best performer in the world for 2015 and at the end of December 2016, was within the top 15 in the world. However, while the main market was up by 27 per cent for fiscal year 2015/16, our junior market closed that year with a 44.8 per cent growth,” the Minister adds.

Against this background, Mr. Shaw says he is “very proud” of the junior market, and encourages the JSE to “promote it more aggressively (in order) to encourage greater involvement.”

He has also given the Ministry’s undertaking to support the JSE’s proposed expansion of the junior market’s listings to 52, with the addition of 22 companies with a combined value of $7 billion.

For her part, Mrs. Street-Forrest notes that the junior market now rivals the JSE’s main market, which has 34 companies representing 43 listed securities.

“We are pleased that the junior market has done so well in the eight years of its existence. Obviously, we want to see more listings on the main market. But we feel that as the companies on the junior market mature and there is greater need for capital, they will graduate to the main market,” she says

Meanwhile, Chief Executive Officer of tTech Limited, Edward Alexander, gave a glowing testimonial about how his company is benefitting from its listing on the junior market at a recent stakeholders luncheon in New Kingston.

The entity assists companies to better manage complex information technology systems that have been installed to enhance their operations. It is the first Jamaican technology firm to be listed on the JSE.

Mr. Alexander indicates that 25 per cent of the 10-year-old company’s 106,000,000 shares, totalling approximately 26,500,000, were sold in an initial public offering in December 2015 when the firm sought capitalisation from the equities market, noting that employees were among the persons who became shareholders.

He says each share was sold for $2.50, which generated $265 million. He notes that during one of the junior market’s recent trading sessions, the shares sold for as much $7.29 each to yield valuation of $772 million, while pointing out that tTech’s listing has done wonders for the entity.

Among the benefits, Mr. Alexander outlines, are improvements in the company’s ability to access additional capital; attracting new partners, particularly from overseas; and getting talented persons for its workforce.

He emphasised that the most significant benefits are being derived from the requisite high level of corporate governance and Board restructuring, including separation of the roles of Chairman and Chief Executive Officer; and succession planning.

These, he points out, have resulted in the implementation of improved operational and strategic planning as well as accountability, reporting and decision-making procedures.

“When we tell potential partners that we are listed on the stock exchange in Jamaica, it increases our credibility in their eyes. I think it puts us in a preferential position of being their potential partner in Jamaica,” he tells JIS News.

“Certainly, it is something that we put forward whenever we are making a pitch to a company as to why we think we should represent them in Jamaica, because being a listed company is like a seal of approval,” Mr. Alexander adds.