The problems of the financially troubled Bahamas International Securities Exchange, which has asked for state assistance to ensure its survival, will be eased by the impending privatisation of the country’s utilities, according to the finance minister.
There has been increasing concern expressed about the privately owned exchange by both the government and the business sector of the archipelago, which has become a major financial services centre. They fear that the failure of the BISX could seriously damage the image of the jurisdiction and its attraction to international business.
“The development of a capital market is a vital component of the country’s broad economic development effort,” said James Smith, the finance minister. “The overall objective is first to recognise the need for a capital market, and then to find ways of deepening it so that it can be self-sustaining.”
The concerns about the threat to the BISX’s viability are based on the Bahamas’ efforts to expand its financial services.
International banks in the country have about $1,000bn under management and it is the domicile for about 700 mutual funds with assets totalling just under $100bn.
The BISX was started three years ago to help expand the financial services sector, but has been hobbled by alack of institutional funds. The private sector raised $5m to start the exchange, but plans have been hit by a lack of business expected from the government’s privatisation of utilities.
The privatisations were to have started four years ago. The government of prime minister Perry Christie, which took office early last year, will jump-start the privatisation this year with the sale of Batelco, the telecommunications provider. This will be followed by the divestment of the national power company and airline.
If the stocks of the privatised telecommunications company were listed on the exchange, it would increase significantly the volume of business, said Mr Smith.
“If the government entered into further privatisation of its entities, this would increase enormously the volume of stocks traded on the exchange,” he said.
However, trading in the assets of the privatised companies will not be enough to guarantee the viability of the exchange, say business leaders. They contend that a more sustainable base will be created by the government’s encouragement of local institutional investors to use the exchange.
BISX is keen for greater participation from agencies such as the National Insurance Board, which has more than $1bn in assets invested primarily in domestic government securities, bank paper and real estate.
The NIB currently has no overseas investments and only 1 per cent of its total assets are listed in Bahamian securities.
There is also the prospect of business from domestic private pension funds, with assets estimated at more than $500m. There are 18 local companies listed on the BISX, with market capitalisations totalling $1.4bn.
“Getting these funds involved on the exchange could quickly make it a viable operation, and a better bet than waiting for trading in entities yet to be privatised,” said a leading banker.
The exchange could also benefit from the local listing or a secondary listing of Bahamian mutual funds, most of which are now listed in Dublin, the banker suggested.
Mr Smith indicated that the government wanted the BISX to remain privately owned.
The study being undertaken would indicate “how the exchange may continue as a private sector-financed operation, and to quantify what public sector support would be indispensable for its future viability,” said the minister.
By Canute James, The Financial Times
