The Minister of State in the Ministry of Finance expects a report on the status of the Bahamas International Securities Exchange next month.
Senator James Smith told The Guardian on Wednesday that he expects the ad hoc special committee of financial experts he appointed in December to report in the first week of March.
The committee, headed by Governor of the Central Bank of The Bahamas Julian Francis, was appointed to quantify what public-sector support would be indispensable to the future viability of the stock exchange.
Mr. Smith expects the committee will engage in a consultative process involving experts, the industry and the public in developing its recommendations.
He hailed the committee as “a good group of sharp persons who know the market and what’s needed to make it work.”
There are about 18 companies on the exchange, with a capital of $1.4 billion.
Mr. Smith also believes that the timely sale of Bahamas Telecommunications Company could have a beneficial impact on the exchange. A strategic partner would put the company on the technological edge, improving share value and adding tremendously to the worth of the exchange, he said.
The sale of Batelco was supposed to have happened about the time BISX came on stream three years ago, giving the exchange an opportunity to benefit from it.
The exchange is a 100-per-cent 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, 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 the same year for the same purpose.
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.
Start-up costs and losses during its first two years of operations resulted in BISX approaching the 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, 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 mandate, last March 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 necessary to enable BISX to become viable.
On the basis of the 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 Central Bank, in accordance with its mandate, agreed to provide the exchange with short-term cash-flow support, through the end of 2002, totalling $150,000.
“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 said 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.
Central Bank Governor Francis said last December 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.
Mr. Francis said based on past experience and the research on developing exchanges, it takes a long time for such an exchange to become fully self-supporting.
Consultants tried to compare The Bahamas’ environment with similar centres in the Cayman Islands and Bermuda. They tried to identify the kinds of products that would be marketable, including The Bahamas’ domestic capital markets.
By Lindsay Thompson, The Nassau Guardian
