EQUITY FINANCING LISTING ON THE JSE

Equity Financing
1
EQUITY FINANCING
LISTING ON THE JSE
What is Equity Financing
2
 Equity Financing can be described as “The
process of raising capital through the sale
of shares in an enterprise.”
 It involves the acceptance of capital
investment while giving up part ownership
of a business.
Raising Equity
3
 Equity Financing spans a range of options:

from selling common equity to the sale of
convertible preferred stock and can be done by way
of an Initial Public Offering (IPO)

to Private Placement.
 Raising equity by way of Private Placement,
the offer is not made to the public but to
select private investors.
Raising Equity
4
 Companies wishing to raise capital by
way of an IPO have the option of listing
on the Jamaica Stock Exchange’s (JSE)
main or junior market depending on its
capital value.
5
JAMAICA STOCK EXCHANGE:
MAIN MARKET
Main Market Requirements
6
 A company with its shareholders equity
above J$500 million after its capital
raising activity would be eligible for
listing on the JSE’s main exchange,
providing other criteria is met.
Main Market Requirements
7
 According to the JSE Rules:
EITHER there is a minimum of 100
share/stockholders holding in their own right
not less than 20% of the issued ordinary capital
(such percentage being not less than $125,000
nominal value) excluding the holding(s) of one
or more controlling share/stockholder(s)
Main Market Requirements
8
 According to the JSE Rules:
OR
There are arrangements then in place which the
Exchange approves in writing as likely to result
in such minimum holding (as to number of
holders and their total holdings) being achieved
by the end of business on the first day the
securities are listed.
Main Market Requirements
9
 A company may list on the JSE via any of the
following methods:
an offer to the public by
or on behalf of a company at a fixed price.
OFFER FOR SALE: an offer to the public, by or
on behalf of a third party at a fixed price.
OFFER BY TENDER: an offer to the public, by
or on behalf of a company or a third.
 PROSPECTUS ISSUE:


Main Market Requirements
10
an offer through stockbrokermembers of the Exchange to sell the securities
of a company to the public.
 PLACING:
 INTRODUCTION: Where
none of the company's
securities are being offered to the public.
Listing Costs – Main Market
11
12
JAMAICA STOCK EXCHANGE:
JUNIOR MARKET
Junior Market Requirements
13
 The shareholder’s equity of the company
following the capital raising activity
outlined in the prospectus shall not be less
than J$50 million and shall not exceed $500
million.
Junior Market Requirements
14
 The company must have a minimum of 25
shareholders holding not less than 20% of the
issued share capital.
Junior Market Requirements
15
 According to the regulatory policies of the JSE:
The only method of issue for the purposes of initial
listing of the Junior Market company is that of a
public offer requiring a prospectus issued in
accordance with the Companies Act and the Securities
Act. A public offer may be made by or on behalf of a
company at a fixed offer price.
Benefits?
16
 There are a number of incentives to listing on the JSE’s
market, these include:
• Reduced Trading fees, that is: JSE Cess, and JCSD trading fees - 50% less
than Main Board.
*This is
applicable to
companies
listing
between
January 01,
2014 –
March 31,
2016, after
which the
tax holiday
will no
longer be
applicable.
Tax Benefit Explored
17
 The tax holiday has been considered the most attractive
feature of listing on a Junior Market. It gives
companies the opportunity.
 Example: If a company which in 2010 was required to
pay $26 million in corporate taxes. Assuming a
conservative growth rate in Profits of 10% over five
years, the company would have paid approximately
$172 million in corporate taxes. However, if the
company was listed on the Junior Market, this $172
million could be reinvested into the business resulting
in a faster expansion in operations.
Listing Costs – Junior Market
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Listing Costs - Junior Market
19
According to the JSE’s Junior Market guidelines, the
following fees would also be applicable for new
companies listing:
 Prospectus upload $25,000
 Review of Prospectus $30,000
 ISIN Number US$150
 Strip $3,378.5 inclusive of GCT
NB. All fees can be taken from the proceeds
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Performance of Companies
That Have Been Listed
Blue Power Group Limited
21
11.5
BPOW Price Movement
10.5
9.5
8.5
7.5
6.5
5.5
4.5
3.5
2.5
1.5
• Since listing on the Junior Market at a price of
$3.89 in April 2010, BPOW’s share price have
increased significantly. A capital appreciation of
approximately 52% after having closed on February
04, 2014 at $9.80.
Financial Performance
22
Yr End.
Apr-10
TURNOVER
Gross Profit
Operating Profit
Interest Income
Pre-tax Profit
Net Profit
Apr-11
696,455,723
126,888,266
791,406,661
151,556,850
47,497,263
1,181,104
43,585,845
29,198,832
60,183,747
1,762,626
55,667,566
54,607,361
Overall
Apr-12
Apr-13
863,003,193 1,044,905,395
164,417,862 232,268,353
46,470,367
2,378,374
47,105,559
47,105,559
95,763,051
9,754,937
103,979,553
103,979,553
CAGR
Growth Rate
150.03%
183.05%
14.48%
22.33%
201.62%
825.92%
238.56%
356.11%
26.33%
102.14%
33.62%
52.71%
• Blue Power has experienced significant growth in revenue and
bottom line profits. The company’s turnover have increased by
an annual average compounded rate of 14.5% for the past 4 years.
Net income closed the 2012/2013 financial year at $103.98
million, the highest reported income since 2005.
Lasco Distributors Limited
23
LASD Price Movement
18.0
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
• Lasco Distributors listed at $2.50 in October 2010. The
company executed a 10:1 stock split in 2013 after having
closed as high as $16.60, an increase of over 564%. At its
current price of $1.44, BPOW has appreciated by 476%
since listing.
Financial Performance
24
Yr End.
Overall
CAGR
Growth
CAGR
12%
14%
73%
26%
53%
73%
Mar.2010
Mar.2011
Mar.2012
Mar.2013
$'000
$'000
$'000
$'000
Revenue
5,842,917
6,756,555
7,460,509
8,255,354
141%
Gross Profit
1,112,501
1,352,221
1,577,395
1,641,263
148%
6,611
49,694
19,798
34,158
517%
Profit from Operations
257,110
447,098
573,546
513,050
200%
Profit Before Taxation
142,577
406,250
570,711
506,833
355%
97,721
306,398
550,377
506,833
519%
Other Operating Income
Net Profit
• Lasco Distributor’s revenue, as indicated above, have grown at an
annual compounded rate of 12%, closing the 2012/2013 FY at
$8.25 billion. Net income attributable to shareholders has
increased by an annual average compounded rate of 73% for the
past 4 years, closing at $506.83 million last year.
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How Can we Assist?
Getting Advise
26
Meet
with
Financial
Advisor
Financial
Advisor
assesses
financial
performance
& business
plans
Financial
Advisor
determines
eligibility
If eligible,
Financial
Advisor
structures
share offer
and sales
strategy,
prepares
prospectus
Things to remember
27
Is the company
an eligible
company?
Shareholders’ Equity
must be greater than
$50 mil but not more
that $500 mil
A mentor
must be
appointed
Company must
never have been
listed on a main
exchange
Company should
show history of
sound financial
performance
Prepared by Mrs. Tania Waldron-Gooden of
Mayberry Investments