Durrant Pate/Contributor

NCB Capital Markets, the biggest player in Jamaica’s equities market is upbeat about the prospects for more initial public offers (IPOs), as a result of the recently announced increase in the junior market share capital threshold.

The government announced more than a week ago that it is moving to increase the share capital threshold from J$500 to J$ 750 million by the end of the first quarter of the 2024/2025 fiscal year.

Dubbing the move as a win-win situation, NCB Cap Markets says the announcement by Finance Minister Dr Nigel Clarke, “was well received by stakeholders as it offers more legroom for new and already-listed companies to raise capital via the junior market. Since its inception in 2009, about 50 MSMEs have listed on the junior market to raise capital and benefit from the associated tax incentives.”

NCB Cap Markets notes that while the average raise was J$203 million over the period, the last five Junior Market IPOs raised around J$400 million, which coincides with the peak of the inflationary period explaining that a company that raised J$500 million in 2009 would need to raise approximately J$1.2 billion in 2024 to retain the real value of that J$500 million.

More investment opportunities for investors

The increase in the threshold should allow companies with higher valuations to list on the junior market of the Jamaica Stock Exchange (JSE), resulting in more investment opportunities for investors.

According to NCB Cap Markets, “Although raising the threshold is expected to attract more MSME listings and reduce tax revenues as more companies’ taxes are waived in the short term, the benefit of providing employment and increased economic activity makes it worthwhile for the government.” 

Jamaica’s dominant equities market player argues that over the longer term, the government should collect more taxes from a larger company at the end of the concessionary period. For example, Lasco Distributors, which was listed in 2010, paid around J$47.53 million in taxes in 2010 before listing. 

At the end of its five-year full tax remission, the company paid an average of J$89 million in taxes and has paid more than J$250 million on average in taxes in 2022 and 2023, which is about 5.3 times greater than the amount before listing.

This means the government is likely to gain more in tax revenues over time by strengthening the junior market while benefitting from increased payroll tax and consumption tax, as MSMEs divert tax savings to expand their operations. 

Depressed market activity 

Over the past two years, primary market activity in the JSE junior market has become depressed coming from six IPOs in 2022 to just two in 2023 and additional public offers (APOs) remained flat at one. This is due in part to the impact of elevated interest rates on valuation and investor sentiment. 

NCB Cap Market posits that, “The increase in the threshold may just be the fill-up needed to attract greater MSME participation. It will allow companies with up to a $3.75 billion valuation to be eligible to list on the junior market compared to the J$2.5 billion under the current regime. That being said, government policies and amendments have to go through many checks and balances before being implemented and could take longer than the announced first quarter deadline.”