Dennise Williams, Staff Reporter
CHEN AND HUMPHRIES-LWEIN
THE INITIAL public offer (IPO) landscape in Jamaica over the last 16 years has not been kind to the unwary. Of course, investors have profited from the majority of offers, but the record shows that quite a few investors have been left holding an empty bag.
One glaring fact is that there have not been as many as 16 IPOs in the last 16 years. Rita Humphries Lewin, chairman of Barita Investments, says "You know there should be more companies listed, but the reason is that companies don't want the responsibility of public scrutiny, especially the family firms. When you list, you give up the ability to do what you wish with the money. And the loss of privacy is a major deterrent."
And another often overlooked deterrent for companies is the cost of listing a company on the Jamaica Stock Exchange. Mrs. Humphries-Lewin notes, "The cost to list is tremendous. And this is due to the way IPOs are marketed."
CHANGE OF METHOD NEEDED
The cost of a prospectus is very high, she said. The law states that the prospectus must be published in at least two newspapers so that any and every Jamaican can have an oppor-tunity to buy.
In the international market, IPOs are handled through brokers and so the clients get information from brokers who analyse the company, she said. "If we changed to this method, it would save a great deal of money for companies who wish to list."
Financial analyst Oliver Chen, says another deterrent is timing, which is critical for success. "If you look at the historical performance of the JSE, we have been in more down markets than up markets."
HARD TO SELL
Phillip Harvey Lewis of Paul Chen Young & Company agrees. "When the market is in a down trend, people turn their backs on the stock market. And if an IPO comes out then, it is a hard sell."
Mr. Lewis notes that between 1991 to 1992, there was a bull run. And this coincided with the listing of Dehring Bunting & Golding, Berger Paints and Jamaica Broilers Group. He then states, "In 1993, there was a slowdown in the market and by 1994, the market bottomed out." In that period, Cibony, Friends, Pulse Investments and CIBC West Indies listed.
Barita Investments was the underwriter for CIBC WI (now FirstCaribbean Internatioal Bank) and Mrs. Humphries Lewin explains why that IPO was successful in a down market. "You have to offer investors the chance to make money. Our offer was four times earnings and that is what we used as the spice to sell the stock. The intention for that IPO was to leave something for the shareholders to profit on."
Mr. Harvey Lewis said that one doesn't have to look back 16 years to see why IPOs can sometimes be a disappointment. He points to more current corporate actions.
"You know, everything that came out since last year has lost value. Mayberry Investments had a private placement of $4.81 and a public offer of $5.05. It is now trading in the $2 region. The Hardware & Lumber rights issue came out at $26 and now the stock is trading in the teens."
Guardian Holdings had a rights issue at $400 and now it is $325, Mr. Harvey Lewis said. Capital & Credit Merchant Bank had a rights issue at $20.50 and it fell to $16.50.
"Now these people are devastated," he said. "They have been taking blows in every direction. That is telling us that the market is overpriced."
And what of the future of IPOs? Mr. Chen says, "I still say it is all about timing. If the company's timing is right, the market will pay a premium for the shares."
Mayberry Investments is a classic example of that. Said Mrs. Humphries Lewin, "It was overpriced but people were hungry to have something new. It was a well structured deal."
Mr. Lewis says, "We will continue to have IPOs but I would like to see two things. One is that the IPO should come out at more reasonable prices, and two is that there must be some way to ensure that only solid companies come forward."
Mrs. Humphries Lewin adds, "An issue that is good will sell; but you have to time the market."
And finally, the issue of investor psychology is vital when it comes to IPOs. Mr. Lewis puts it this way, "Our investing public needs to be selective. People are only concerned with how quickly the price of the IPO will run up. That is more important to many than buying into a solid company."
Companies on market since 1992
| COMPANY | IPO PRICE | YEAR |
| Dehring Bunting & Golding | $1.00 | 1992 |
| Jamaica Broilers Group | $4.95 | 1992 |
| Berger | $2.30 | 1992 |
| Cibony | $5.50 | 1993 |
| Corporate Resorts/Friends | $3.60 | 1993 |
| Pulse Investments | $4.00 | 1993 |
| CIBC West Indies | $18.25 | 1994 |
(now First Carib Int'l Bank Jamaica)
| IBS/KLAS | $1.60 | 1995 |
| Jamaica Money Market Brokers | $4.15 | 2002 |
| Capital & Credit Merchant Bank | $5.00 | 2003 |
| Mayberry Investments | $5.05 | 2005 |
| Supreme Ventures | $4.81 | 2006 |
