I recently had the pleasure of speaking at the “Junior Market Clinic” hosted by the Jamaica Stock Exchange (“JSE”) in association with the Inter-American Development Bank and the Ministry of Finance. The Clinic was one of a series of events commemorating the JSE’s National Investor Education Week. The Junior Market Clinic was aimed at Small and Medium sized enterprises and the presenters highlighted the benefits, requirements, procedure and obligations that arise from listing on the Junior Market. It became readily apparent to me that while many business operators are aware of the Junior Market, they remain uncertain as to its benefits and how to ascertain if listing makes sense for their business. Hopefully the points discussed in this article will help put matters into perspective.
The Ability to Raise Capital from the Public
The primary reason why most operators of small to medium sized enterprises (SMEs) would opt to list on the Junior Market is because of the ability to raise capital from the public. SMEs that have opted to list have enjoyed the benefit of large capital injections, without the burden of traditional loans or debt financing.
Commercial lending rates presently range from 14 – 18%. Securing a loan from a financial institution also often entails having attractive assets that the financial institution proposes to charge and hold as security for the loan; entering into complex security arrangements and having a guarantor for the loan. Also, as the income of an SME tends to ebb and flow, the making of monthly loan payments can leave an SME vulnerable during a challenging financial time.
Alternatively, if an SME were to seek to raise capital via equity financing by selling shares in its company, the sale of the those shares would attract transfer tax and stamp duty. Another benefit of listing on the Junior Market, is that once listed, the further transfer of the company’s shares would be exempt from transfer tax and stamp duty.
How does one raise this capital from the public?
In order to list on the Junior Market a company must make an initial public offer (“IPO”). This is the process by which a company will offer its shares to the public for a fixed price. This also entails issuing a prospectus in accordance with the Companies Act and the Securities Act and its Regulations. A prospectus is essentially a statement to the public that summarizes the past and present performance of a company and its future prospects. It should effectively give an investor all the facts he or she would need to know in order to make an informed investment decision. It is also a requirement for listing on the Junior Market that Post IPO the aggregate shareholder’s equity in the company must not be less than $50 million and not exceed $500 million.