The timely sale of Bahamas Telecommunications Corporation (BaTelCo) could have had a beneficial impact on the Bahamas International Stock Exchange (BISX).
This, the Governor of the Central Bank Julian Francis, and Minister of State in the Ministry of Finance Senator James Smith told a press conference Wednesday in the bank’s conference room.
Mr. Smith announced that an ad hoc Special Committee of financial experts was appointed to quantify what public sector support would be indispensable to the future viability of the stock exchange.
The committee chaired by Governor of the Central Bank is to report to Mr. Smith no later than April 2003. Mr. Smith expects that the committee will engage in a consultative process involving experts, the industry and the public in developing its recommendations.
The committee, which met for the first time last week, is scheduled to meet again today (Thursday).
There are 18 companies on the exchange with a capital of $1.4 billion.
According to Mr. Smith, BaTelCo, as a strategic partner putting the telecommunications company on the technological edge, those shares could ad tremendously to the value of the exchange.
The sale of BaTelCo (now Bahamas Telecommunications Company) was supposed to have happened at about the time BIXS came on stream, giving the exchange an interesting opportunity to benefit from that.
BISX is a 100 percent private sector entity, which was launched at the beginning of 2000 with some $5 million of private capital funding.
Prior to October 2002, the only public sector financial support provided to BISX was a credit of $213,250, provided in December 1998 by the Central Bank of The Bahamas to finance the development of computer software applications, and a Government grant of $72,500 provided during the same year for this purpose.
“They were not grants in the sense of just giveaway, it was some unexpectation that at some point in the future, claims would be made to either repay or if the advance is taken in some form of a bond maybe a convertible feature to it, the Central Bank in helping to develop a capital market might decide at some point want some oversight over the initial funds and might possibly stay with it,” Mr. Smith said.
The Central Bank of The Bahamas has, since 1993, in accordance with its statutory mandate to facilitate the development of domestic capital markets, played a part in government-led initiatives to establish a formal securities exchange in The Bahamas.
“The Government of The Bahamas has been, and is of the view that development of domestic capital markets is a vital component of the country’s broad economic development effort,” Mr. Smith said.
He noted that start-up costs and losses experienced during its first two years of operations resulted in BISX approaching Government in mid 2001 to provide substantial financial assistance to support the continued functioning of the exchange. The blacklisting of the financial services sector by the Financial Action Task Force also beset BISX.
“It had become evident that the original business plan was not being realised, and that the exchange required refinancing and a refocusing of its operations,” Mr. Smith said.
During the second half of 2001 and throughout 2002, he said efforts were undertaken by the Board of Directors to reduce costs, and certain shareholders of BISX provided financing to avoid closure.
And, in an effort to address this need for restructuring and refinancing, the Central Bank of The Bahamas, in accordance with its above mandate, in March 2002 commissioned a study, by capital markets experts to review all aspects of BISX’s operations, reassess the exchange’s viability, and identify public policy measures which would be necessary to enable BISX to become viable.
On the basis of the that study, the Central Bank submitted a set of recommendations to the Government including a proposal for public sector financial support and the identification of public policy options to rescue the exchange.
At the same time, the Bank, in accordance with its statutory mandate, agreed to provide the exchange with short-term cash flow support, through the end of 2002, totalling $150,000, Mr. Smith said.
“Upon reviewing the recommendations of the Bank, the Government has appointed a Special Committee comprised of financial experts, capital market participants and public officials to determine how the exchange may continue as a private sector-financed operation, and to quantify what public sector support would be indispensable to the future viability of the exchange,” Mr. Smith said.
He further explained that BISX is in a very untenable position; unsustainable in so far as the revenue that it generates is far below is operating costs.
“So one of the first things that would probably be required is some retrenchment in terms of operating costs and simultaneously look hard and fast at means of expanding the revenue base either new products or innovative means,” Mr. Smith said.
Mr. Francis added that it was too early to know whether it would be appropriate to take one course or another with regard to the amount, which the Central Bank has already provided.
“But what is important is that there is an option by the Central Bank to consider whether it would wish to perhaps own some kind of equity in the exchange or to recover those amounts should the exchange become viable and find itself in a position to repay,” he said.
Asked whether he sees the exchange becoming viable anytime soon, Mr. Francis said based on past experience and the research on developing exchanges, that it does take a period of time which extends beyond the timeframe that we are currently in for such a exchange to become fully self supportive.
The study, the consultants tried to compare The Bahamas’ environment with similar centers regionally such as the Cayman Islands and Bermuda. They tried to identify the kinds of products, which would be marketable, saleable and form the basis of the business of the exchange, including The Bahamas’ domestic capital markets.
Mr. Smith noted that should the privatisation of BaTelCo, if those stocks were passed through an exchange, it would increase the volume tremendously.
“If the Government entered into further privatisation of its entities and traded on the exchange, that would increase enormously the volume of stocks traded on the exchange,” he said.
There is a potential overtime and if done in the proper sequence to create the kind of critical mass that would be necessary for the exchange to generate the income to survive, this is what we are hoping.
“The overall objective is to first of all recognise the need for a capital market and to find ways of deepening that so that it can be self sustaining.” Mr. Smith said. “If we are to go into the 21 Century as a modern economy then we need modern institutions and a well working capital market is one of those things without which a country won’t go forward.”
By Lindsay Thompson, The Nassau Guardian
