Give us incentives
Government told it must do more to encourage investment
A financial expert is calling on the Government to provide incentives to private citizens to trade on the Barbados Stock Exchange (BES), which he lamented, remains undersubscribed.
Against the backdrop of a two-way take over battle for Banks Holdings Limited (BHL) between the Trinidad and Tobago conglomerate ANSA McAL and the Brazilian-owned AMBEV, Investment Director at OurInterest Advisors Inc, Craig Harewood questioned the rate at which shares were sold on the exchange.
He argued that the listed share price was not on par with the value recorded on the companies’ books and blamed the low market value on the infrequent level of trading on the BSE.
Citing BHL as an example, Harewood noted that the initial offer made by SLU Beverages Limited was $4.00, way below the fair value, which was estimated by BHL’s valuator KPMG at $5.20.
Earlier in September, SLU Beverages acquired 13.1 million BHL Shares in a block trade after purchasing the shares at $2.49.
“The problem with the share price not reflecting the true value of BHL or other listed companies on the stock exchange had to do with the lack of trading. That lack of trading is caused by a few persons at no fault of their own,” Harewood said.
He pointed out that there were few large entities, trading on the BES and they were engaging in what he called “a buy-and-hold strategy”, which resulted in little movement on the stock exchange.
“It is one of concentration in that we have a few entities or persons owning most of everything and therefore the market is less efficient than it should be.”
Harewood said the problem could be corrected if private citizens were encouraged to trade on the stock exchange and he urged the Government and the BES to take a second look at the rules of raising capital.
“So for example if an investment company is raising capital via private placement in Barbados under our current legislation only certain entities who can invest over a hundred thousand dollars can participate, so we have to find ways to include smaller investors from an early stage.
“The only way to get the prices up on the exchange on a regular basis where they are trading at near share value is if we incentivize persons to trade. Basically, that would entail lowering the concentration between smaller investors and larger investors. The implication is that smaller investors would hold on to shares not for a long time period, maybe a year or two, and then sell them at a higher price for example. So that is how you would go about correcting it and the Barbados Stock Exchange and the Government would have to find ways to incentivize the public and dis-incentivize larger entities from holding on to the shares for too long.”
In an earlier interview with Barbados TODAY, noted economist and Dean of the Faculty of Social Sciences at the University of the West Indies, Dr Justin Robinson, had also argued that infrequent trading on the BSE meant that stock prices were not being regularly updated to reflect the current book value and future growth potential of companies.
But amid the scrutiny, General Manager of the BSE Marlon Yarde insisted that share prices were determined by the interaction of investors and while he wanted to see “greater volumes” trading on the exchange, he pointed out that activity was up for the first nine months of the year.
“The total volume of shares traded increased by 284 per cent while total value of shares traded increased 456 per cent when compared with the corresponding period in 2014. The Regular and Put Through Markets recorded increases in terms of both volume and value while there was no activity on the Junior Market,” he told Barbados TODAY.