Business Page – Why Guyana companies do not list

Sunday, July  16th, 2006

Introduction:

Of all the Caribbean territories, Guyana is the most paradoxical and that is apart from the fact that it has the largest landmass in the region and some of the best and the brightest. It is also the poorest, and in the area of public companies it is the only country which despite having fourteen (14) companies registered with the Securities Council, has none which have opted to list on the stock exchange. Even if one discounts those companies such as ON Energy, Globe Trust & Investment Inc, and Property Holdings Incorporated, J P Santos and Company Limited and Caribbean Containers Inc, the reasons for none of the other companies seeking to list on the exchange are hard to fathom.

Part of it lies of course in the fact that these companies are by law allowed to trade on the exchange and, with their generally narrow focus, see little benefit in submitting themselves to more supervision and regulation. By contrast there are some one hundred and seven companies in the region which are listed on their domestic exchanges mainly in the manufacturing and financial services sectors (Table 1). As we shall see later some are now moving out of their 'home' countries and listing on other exchanges as well (Table 2).

Try explaining this:

The exclusion of Guyana from the list of listed companies is one of the hardest things to explain to regional colleagues. Admittedly Guyana is perhaps the only country where the private sector has found it rather easy to move to the courts to gag the securities regulator. Yet, we are not the only country with governance problems, whether actual or perceived. The CTIR writing about Equity Market Structures and Cross-Border Development noted that "There is a general perception that corporate behaviour in the Caribbean is non-transparent and that there exist information asymmetries in the market place. Many of the market structures of the host jurisdictions comprise monopolies and oligopolies. Moreover, the regulators of corporate behaviour are perceived, at best, to be ineffectual in the encouragement of appropriate corporate behaviour."

If that is a faithful reflection of the reality in the rest of the region where the regulators and the market swiftly penalise recalcitrant companies, just imagine how Guyana's landscape would be described. And that brings us back to the question why is no company willing to list when according to GASCI, the benefits include:

The ease of raising equity compared to what an unlisted issuer would face.

the greater appeal of listed companies for overseas and institutional investors;

the capacity of a listed company index to attract more publicity than an unlisted company;

greater investor confidence;

the opportunity to enhance their image for both internal and external markets;

higher share prices than unlisted companies;

the fact that only listed companies can be cross-listed on regional exchanges;

obligations and cost.

Naturally, listing carries with it certain conditions, but these seem disproportionately small compared with the potential benefits. Some of the requirements set out in the GASCI Rules include an adequate trading record; audited accounts for 3 financial years; an open market in the securities; that at least 20% of the securities must be in public hands with a minimum of 100 shareholders; a market value or shareholders' funds of not less than 500 million dollars with not less than 100,000 shares held by a minimum of 50 shareholders; no conflict between the interests of the shareholders of the issuer and any private or competing interests of its directors; independent directors and freely transferable securities.

The financial cost too does not appear too onerous and insignificant when compared with what directors are prepared to pay in legal fees to shelter them from the regulator.

What makes the reluctance to list even stranger is that the listing rules had the blessing of persons associated with companies that now refuse to list and who perhaps hypocritically are lamenting the fact that no one is listing.

Leaving Guyana behind:

And while we ponder this mystery our economy languishes and regional competitors move away and ahead in seizing the opportunities - including right here in Guyana - offered by globalisation and the CSME, and are ready to cross-list on other stock exchanges. Cross-listing refers to the placing of securities which are already listed on a domestic stock exchange on the official list of the exchange in another country or countries allowing investors to buy and sell securities across borders in a system where trades are executed based on the regulations of the exchange on which the trade is executed.

There has been an increasing tendency to cross-list by the larger Caribbean countries. More important than the sheer absurdity of having non-Guyana companies being the only listed companies on our exchange is the potential impact on the economy, the exchange rate and the cost of funds to our Guyana companies if the investing public shifts their investment portfolio from the domestic companies to the regional companies. Such a move would be highly advantageous as exchange risks are minimised, dividends at the rate of zero per cent are earned in foreign currency and investors see themselves as part of a bigger and possibly better entity with better corporate governance practices.

The CTIR identifies a number of benefits a cross-listed company is presumed to enjoy. These include: the cross-listed company is assumed to have met the criteria for listing in its domestic jurisdiction as well as have a consistent track record of full compliance with the territory's listing rules and other regulatory requirements. The CTIR goes on to point out that experience has shown that the announcement of a cross-listing and the subsequent listing on any of the regional stock exchanges is usually well received by local investors because the illiquid markets harbour a pool of persons always on the look out for new investment opportunities.

Next week we continue this discussion on listing and cross-listing and the implications for Guyana.

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