Business Page – Why Guyana companies do not list

Sunday, July  23rd, 2006

Source: Caribbean Trade and Investment Report 2005 (CTIR) Note the absence of Guyana

Introduction:

Today we conclude our exploration of the reasons why Guyana is the only country in the region which does not have a single company that is officially listed on its domestic Stock Exchange. Let me first thank the several persons who offered very useful comments on last week's article and helpful suggestions on this week's. I agree that I did not distinguish between a 'listed' company and one that is trading on the Stock Exchange.

One of the principal functions of the Stock Exchange is to provide a fair, orderly and efficient market for the trading of securities. The rules of the Stock Exchange provide for two categories of securities which can be traded - the securities of all reporting issuers which have applied to, and have been approved by, GASCI for admission to the Official List; and other securities registered with the Securities Council under section 57 of the Securities Industry Act (SIA) but which are not included in the Official List.

Section 57 of the SIA provides that 'no security shall be offered to the public or listed with any self-regulatory organisation, such as the Guyana Association of Securities Companies and Intermediaries (GASCI) unless it is registered with the Council …' It is unlikely that non-listing was intended as a permanent status but more likely to allow companies which were already trading on the Call Exchange to trade on the Stock Exchange without interruption, while the process of application for listing took place.

Free meals:

With a view to making it easy and burden-free for public companies, GASCI which runs the Stock Exchange, allowed them to trade on the Stock Exchange without imposing any fee or other cost. Those companies have decided however that that was more than a free lunch but rather a right to permanently free meals. The introduction of the Stock Exchange has been completely subsidised by the taxpaying public but let there be profits at some stage and the companies with seats on the Stock Exchange will simply appropriate them as their entitlement. The performance and conduct of public companies are far too important to be left to the whims of management and such cavalier behaviour ought not to be tolerated. When compared with the legal costs incurred by some to obstruct the regulators, the $2Mn. listing fee in the first year and $1.5Mn. per year thereafter hardly seem burdensome.

CSME:

If companies do not want to list on their domestic exchanges, they are hardly likely to want to or succeed in listing on other exchanges. The coming into being of the Caribbean Single Market and Economy (CSME) and the consequential challenges and opportunities for public companies as they seek to raise both their profiles and finance across markets would suggest that listing is not a choice but a necessity. Yet our companies that claim to be world-class show little regard for modern practices in how their securities are traded and the way cutting edge companies are governed.

Just by way of example let us look at the number of domestic and cross-listed firms as at December, 2005 on the regional stock exchanges:

Punishing the good deeds:

Last week we touched on some of the reasons which may have caused companies not to list. Some persons have suggested other reasons for companies' failure to list including the absence of a mandatory requirement which observers consider a failure on the part of the lawmakers and, perversely and ironically, the weaknesses in the court system which may delay or prevent redress. Perhaps millions of US Dollars have been spent on modernising commercial laws, setting up the Securities Council, the Call Exchange and the Stock Exchange, making dividends tax-free, exempting transfer of securities from the payment of stamp duty and from Capital Gains Tax. And to show that no good deed goes unpunished, the public companies have responded with a complete disregard for the objectives of these moves and the wider public interest.

One person suggested that what we do not have in Guyana are model public companies that are leading the way in taking us from the level one type of company concerned with the minimalist approach to corporate governance to the level three type which has moved beyond mere compliance with the laws (level one) and the 1992 Cadbury Rules (level two) to corporate social responsibility (level three). It is perhaps more accurate to suggest that our society and institutions including the courts, the regulators and most especially the Office of the Registrar of Companies and the politicians have led us to look in the wrong direction.

Private enrichment and public good:

Some years ago, when the civil society group GUARD was established to join the fight for the return of free and fair elections, Mr. Yesu Persaud spoke of the need to come out from the cave and into the modern world. That admonition could apply with equal force and relevance to the practices of a number of our public companies that have largely taken advantage of the significant benefits and privileges offered by the law and done so purely for private enrichment at the expense of the public good. The justification of all these tax exemptions is in my view based on questionable logic and needs revisiting, and while it is a matter for another forum, it does not seem irrelevant to this discussion. Why should the gain on the sale of a principal residence be subject to Capital Gains Tax but not the sale of shares in a public company? Why should the exemption from stamp duty not be limited to listed companies and why are tax rates on capital gains lower than the rates of taxes on earned income?

Guyana lost the opportunity to establish a meaningful stock exchange when it pursued the short-sighted privatisation programme of selling to the highest bidder rather than to widen share ownership among the ordinary people. The challenge to develop a strong stock exchange in a small country and economy is never easy whether the public companies are controlled by a majority shareholder or by irreplaceable and self-serving management; or whether the rules to encourage transparency and accountability are adequate and enforced.

Basic infrastructure:

Yet, in order to fully take advantage of the immense opportunities of cross-listing i.e. whereby a company is listed on the stock exchange of more than one country, we need to create a truly functional domestic exchange. Perhaps less out of conviction than following the dictates of the donor community, successive administrations have put in place the basic infrastructure for a stock exchange - low inflation, investment protection legislation, new companies and securities laws and regulations and policies that encourage the creation of public companies.

The fact that the private sector has simply not responded may be because of their attitudes to control, ignorance of the benefits of public company status and the choices of financing, the fear that transparency would limit their options and not least their attitudes to the tax laws. Corporate financing in Guyana is still synonymous with bank financing with all its obvious and hidden costs and it would seem that even as it tries to foster the development of the stock exchange, the country should aim to develop the financial sector, starting with the banking system since this would be the most effective way to foster the development of small and medium-sized enterprises, a key source of economic growth.

The failures of the Office of the Registrar of Companies and the Minister of Finance to exercise their immense powers and discharge their obligations under the Companies Act have spawned a culture of corporate banditry not unlike the other forms prevalent in the lawless elements of society. Despite all the misdemeanours and suspected illegalities by certain companies in key sectors of the economy, not once has the Minister used his powers to investigate any company for potential wrong-doing.

Conclusion:

Last week we noted the irony and embarrassment we would face if a company resident in another jurisdiction became the first to list on the Guyana Stock Exchange. While the benefits to the company are substantial and need no repeating the matter would become even more urgent if the single Caribbean Stock Exchange becomes a reality. Just for information, Mr. Yesu Persaud who led the private sector delegation at the recent High Level Caricom forum in Barbados supported the formation of just such an Exchange.

Business Page acknowledges the permission of the Caricom Secretariat for the use of the Caribbean Trade and Investment Report 2005.