JSE Junior Market JSE Junior Market

WorkshopWorkshop

Dylan CokeDylan Coke Andrea KinachAndrea KinachAttorneyAttorney--atat--Law Law AttorneyAttorney--atat--LawLaw

Asst. Vice President Asst. Vice President Patterson Mair HamiltonPatterson Mair Hamilton

Business DevelopmentBusiness Development

NCB Capital Markets LimitedNCB Capital Markets Limited

OverviewOverview

•• Advantages of Being a Public Advantages of Being a Public CompanyCompany

•• Global Junior Markets & Success Global Junior Markets & Success StoriesStories

•• JSE Junior Market OverviewJSE Junior Market Overview

•• Procedures and Guidelines for Procedures and Guidelines for AdmissionAdmission

•• General Admission GuidelinesGeneral Admission Guidelines

•• Specific Admission RequirementsSpecific Admission Requirements

–– Method of IssueMethod of Issue

–– Shelf DocumentsShelf Documents

–– Mentor Appointment and Mentor Appointment and DutiesDuties

•• Movement between Junior Market Movement between Junior Market and Main Boardand Main Board

•• Benefits & TaxationBenefits & Taxation

•• Timeline to AdmissionTimeline to Admission

•• Life on the Junior MarketLife on the Junior Market

•• Leaving the Junior MarketLeaving the Junior Market

•• AcknowledgmentsAcknowledgments

•• DisclaimerDisclaimer

What is a Junior Market?What is a Junior Market?

•• Junior market is a stock market Junior market is a stock market

established/attached to an existing established/attached to an existing

exchangeexchange

•• Usually targeted at Usually targeted at SMEsSMEs

•• Usually has easier listing requirementsUsually has easier listing requirements

•• Intended to develop Intended to develop SMEsSMEs & drive & drive

economic growtheconomic growth

Advantages of Being a PubliclyAdvantages of Being a Publicly--Listed Listed

CompanyCompany

•• Raise company and business profileRaise company and business profile

•• Basis for valuationBasis for valuation

•• Ability to raise capital from the public Ability to raise capital from the public

•• Attractive alternative to debt financing which Attractive alternative to debt financing which requires collateral, and can be expensive:requires collateral, and can be expensive:-- Base interest rates for local currency loans are in the Base interest rates for local currency loans are in the

range of 19.125% to 22.50%range of 19.125% to 22.50%

•• Allows public to participate in success of the Allows public to participate in success of the companycompany

•• Good corporate discipline and transparencyGood corporate discipline and transparency

Global Junior MarketsGlobal Junior Markets

London Stock Exchange London Stock Exchange –– Alternative Investment Market (“AIM”)Alternative Investment Market (“AIM”)

Toronto Stock Exchange Toronto Stock Exchange –– Venture Market (“TSXVenture Market (“TSX--V”)V”)

•• Allow investors to put capital into legitimate small and medium Allow investors to put capital into legitimate small and medium sized enterprises (“sized enterprises (“SME’sSME’s”) that are listed”) that are listed

•• Represents an exciting new opportunity for SMEs to raise capitalRepresents an exciting new opportunity for SMEs to raise capital, , investors to participate in growth of Jamaican equities market. investors to participate in growth of Jamaican equities market.

•• JSE aims to establish the Junior Market by the end of the 1JSE aims to establish the Junior Market by the end of the 1stst

quarter of 2009quarter of 2009

London Stock Exchange London Stock Exchange

Alternative Investment Market (“AIM”)Alternative Investment Market (“AIM”)

•• Quick Facts:Quick Facts:–– Launched 1995 Launched 1995

–– Over 1550 companies listed from over 30 countriesOver 1550 companies listed from over 30 countries

–– Total Market Cap Total Market Cap ££50,208M50,208M

–– Over 138,000 trades with a value of Over 138,000 trades with a value of ££327M during Nov. 2008327M during Nov. 2008

•• Reasons for establishment:Reasons for establishment:–– Allows smaller growing companies access to capital with less Allows smaller growing companies access to capital with less

regulation.regulation.

•• Very flexible listing requirements:Very flexible listing requirements:–– No track record, restriction on share transferability, minimum No track record, restriction on share transferability, minimum

size or shareholding requirements.size or shareholding requirements.

–– Main requirement: prospective companies must enlist AIMMain requirement: prospective companies must enlist AIM--approved Nominated Advisor “NOMAD” to determine suitability approved Nominated Advisor “NOMAD” to determine suitability for admission, and to act as a periodic adviser.for admission, and to act as a periodic adviser.

Toronto Stock Exchange Toronto Stock Exchange

Venture Market (“TSXVenture Market (“TSX--V”)V”)

•• Quick Facts:Quick Facts:–– Acquired in 2001Acquired in 2001

–– Over 2100 companies listed (Dec. 31 2007)Over 2100 companies listed (Dec. 31 2007)

–– Total Market Cap CDN $58B (Dec. 31 2007)Total Market Cap CDN $58B (Dec. 31 2007)

•• Reasons for establishment:Reasons for establishment:–– Allow smaller growing companies access to capital Allow smaller growing companies access to capital

–– Listing requirements are not as flexible as AIM and Listing requirements are not as flexible as AIM and vary by sector and Tier: They include:vary by sector and Tier: They include:•• Minimum value of tangible assets, property, capital Minimum value of tangible assets, property, capital distribution etc.distribution etc.

TSXTSX--V Success StoriesV Success Stories

•• Artis REIT (Calgary, Manitoba)Artis REIT (Calgary, Manitoba)–– Went public in 2004Went public in 2004

–– Raised CDN $147MRaised CDN $147M

–– Graduated to TSX 2006Graduated to TSX 2006

–– Market Cap (June 30, 2007) of CDN$445M Market Cap (June 30, 2007) of CDN$445M

•• Kangaroo Media Inc. (Canada)Kangaroo Media Inc. (Canada)–– Went public in 2004Went public in 2004

–– Raised CDN $33MRaised CDN $33M

–– Graduated to TSX 2006Graduated to TSX 2006

–– Market Cap (June 30 2007) of CDN$85M Market Cap (June 30 2007) of CDN$85M

JSE Junior Market: JSE Junior Market: A Place for SMEsA Place for SMEs

•• A market designed for SMEs to grow in a supportive A market designed for SMEs to grow in a supportive

environmentenvironment

•• Designed for ease of use by SMEsDesigned for ease of use by SMEs

•• Suitable for SMEs with subscribed equity capital of Suitable for SMEs with subscribed equity capital of

J$50m J$50m -- J$500mJ$500m

•• Supported by tax concessions granted by GoJ, for a Supported by tax concessions granted by GoJ, for a

maximum period of 10 yearsmaximum period of 10 years

•• Concessions are dependent on the SME remaining for Concessions are dependent on the SME remaining for a a

total of 15 years on both JSE platforms or the total of 15 years on both JSE platforms or the

concessions lapse and must be repaidconcessions lapse and must be repaid

•• Reduced JSE fees: 50% less than on Main BoardReduced JSE fees: 50% less than on Main Board

General GuidelinesGeneral Guidelinesfor Admission to the Junior Market (1)for Admission to the Junior Market (1)

•• Admission of eligible companies to the Junior Market is Admission of eligible companies to the Junior Market is at the absolute discretion of the JSE Boardat the absolute discretion of the JSE Board

•• An eligible company:An eligible company:–– is incorporated or registered and operating as a business in is incorporated or registered and operating as a business in

Jamaica, or a CARICOM countryJamaica, or a CARICOM country

–– can’t be ‘associated’ with a JSE listed or other listed companycan’t be ‘associated’ with a JSE listed or other listed company

–– has subscribed equity share capital of J$50m has subscribed equity share capital of J$50m -- $500m$500m

–– has a certain number of shareholders holding at least 20% of has a certain number of shareholders holding at least 20% of the equity share capital (25+ after IPO and in Tier 1, 50+ in the equity share capital (25+ after IPO and in Tier 1, 50+ in Tier 2)Tier 2)

–– has appointed a mentor to act as a compliance adviser to the has appointed a mentor to act as a compliance adviser to the BoardBoard

–– has to meet criteria for GoJ tax concessionshas to meet criteria for GoJ tax concessions

General GuidelinesGeneral Guidelinesfor Admission to the Junior Market (2)for Admission to the Junior Market (2)

Initial Admission to Junior Market requires: Initial Admission to Junior Market requires:

-- initial public offering of equity sharesinitial public offering of equity shares

-- prospectus (under Companies Act, Securities Act)prospectus (under Companies Act, Securities Act)

-- other standard form documents, such as the Admission other standard form documents, such as the Admission

Agreement, Declaration, Mentor AgreementAgreement, Declaration, Mentor Agreement

-- documents including prospectus and eligible company documents including prospectus and eligible company

approval minutes will be provided in ‘shelf’ form, for approval minutes will be provided in ‘shelf’ form, for

ease of use (but still require professional advice)ease of use (but still require professional advice)

-- payment of admission fees (JSE Board to provide payment of admission fees (JSE Board to provide

concessionary rates)concessionary rates)

General GuidelinesGeneral Guidelines

for Admission to the Junior Marketfor Admission to the Junior Market (3)(3)

Continuing compliance:Continuing compliance:

-- Admission conditions Admission conditions (including but not limited (including but not limited

to maintaining tax concession eligibility and to maintaining tax concession eligibility and

appointment of mentor)appointment of mentor)

-- financial reporting quarterly and annually in financial reporting quarterly and annually in

IFRSIFRS

-- timely disclosure of price sensitive information timely disclosure of price sensitive information

in the form of public announcementsin the form of public announcements

-- takeovers, mergers, amalgamations are takeovers, mergers, amalgamations are

regulatedregulated

Specific Admission Requirements:Specific Admission Requirements:Method of IssueMethod of Issue

•• Public offer of equity share capital at a fixed price (offer Public offer of equity share capital at a fixed price (offer for sale or subscription)for sale or subscription)

•• Prospectus Prospectus forwarded to JSE (and FSC) in draft form for forwarded to JSE (and FSC) in draft form for review, at least 21 days before date of publication review, at least 21 days before date of publication

•• Publication of approved prospectus at least 14 days Publication of approved prospectus at least 14 days before offer opens for sale or subscription before offer opens for sale or subscription -- newspaper newspaper not necessary, can be on JSE websitenot necessary, can be on JSE website

•• Prospectus will also be disseminated through lead Prospectus will also be disseminated through lead brokers and selling agents brokers and selling agents

•• Requirements for details of allotment in accordance with Requirements for details of allotment in accordance with Companies Act and rules of the Main BoardCompanies Act and rules of the Main Board

Specific Admission Requirements:Specific Admission Requirements:Shelf DocumentsShelf Documents

Within fifteen (15) days after allotment of the equity share Within fifteen (15) days after allotment of the equity share capital in the IPO:capital in the IPO:

•• ProspectusProspectus

•• Admission ApplicationAdmission Application

•• Admission AgreementAdmission Agreement

•• Declaration for AdmissionDeclaration for Admission

•• Mentor AgreementMentor Agreement

•• Approval Minutes Approval Minutes -- Board of Directors and EGM ofBoard of Directors and EGM of

original equity shareholdersoriginal equity shareholders

All provided by JSE in shelf document form and are easy to All provided by JSE in shelf document form and are easy to use but not a substitute for proper legal advice !use but not a substitute for proper legal advice !

Specific Admission Requirements:Specific Admission Requirements:Mentor to the BoardMentor to the Board

•• Experienced in complianceExperienced in compliance

•• Advisor to the Board, but not a DirectorAdvisor to the Board, but not a Director

•• Not a business advisorNot a business advisor

•• Approved by JSE BoardApproved by JSE Board

•• Duties to share Duties to share -- and security and security -- holders of the holders of the

Junior Market Company as a wholeJunior Market Company as a whole

•• Duties to JSE Board (including notification of rule Duties to JSE Board (including notification of rule

breaches by Junior Market Company)breaches by Junior Market Company)

Mentor DutiesMentor Duties

•• Sign up to Mentor AgreementSign up to Mentor Agreement

•• Providing compliance, not business, advice to Board of Providing compliance, not business, advice to Board of Junior Market Company Junior Market Company

•• Key duty is to advise on establishment of adequate Key duty is to advise on establishment of adequate procedures, systems and controls for:procedures, systems and controls for:

-- good corporate governance, including:good corporate governance, including:•• the holding of regular Board meetingsthe holding of regular Board meetings

•• the establishment of appropriate Board committees, such as the establishment of appropriate Board committees, such as an audit and remuneration committeean audit and remuneration committee

•• carrying out of appropriate due diligence enquiries by carrying out of appropriate due diligence enquiries by Company, prior to and following Admission to the Junior Company, prior to and following Admission to the Junior Market, and at material stagesMarket, and at material stages

–– good fiscal discipline and financial reporting good fiscal discipline and financial reporting

–– timely disclosure of price sensitive informationtimely disclosure of price sensitive information

Movement between Junior Market and Movement between Junior Market and

Main Board of the JSEMain Board of the JSE

•• Junior Market Company to remain on Junior Market for Junior Market Company to remain on Junior Market for up to 10 years up to 10 years

•• The 10 year period will consist of 2 Tiers of 5 years eachThe 10 year period will consist of 2 Tiers of 5 years each

•• After 10 years the Junior Market Company is expected to After 10 years the Junior Market Company is expected to graduate to the Main Board and to remain on it for graduate to the Main Board and to remain on it for another 5 yearsanother 5 years

•• However if Junior Market Company is more However if Junior Market Company is more sophisticated/suitable to the Main Board, or if its sophisticated/suitable to the Main Board, or if its subscribed equity capital grows above J$500m it must subscribed equity capital grows above J$500m it must graduate at that stagegraduate at that stage

Benefits and TaxationBenefits and Taxation

JSE is proposing a tax incentive for an JSE is proposing a tax incentive for an Allowable Allowable PeriodPeriod not exceeding 10 years from the date of listing not exceeding 10 years from the date of listing on JSE Junior Market. on JSE Junior Market.

•• Full income tax holiday for half of Allowed Incentive Full income tax holiday for half of Allowed Incentive Period after listingPeriod after listing

•• Half income tax holiday for 2Half income tax holiday for 2ndnd half of Allowed Incentive half of Allowed Incentive PeriodPeriod

•• Exemption from transfer tax and stamp duty on transfers Exemption from transfer tax and stamp duty on transfers of shares in JSE Junior Market companiesof shares in JSE Junior Market companies

•• If company deIf company de--lists within 15 yrs of being listed on lists within 15 yrs of being listed on combined exchanges it will be required to repay to combined exchanges it will be required to repay to Government tax benefits enjoyed during this period.Government tax benefits enjoyed during this period.

Benefits and TaxationBenefits and Taxation

•• An exemption from tax on dividends or other An exemption from tax on dividends or other

distributions as outlined below:distributions as outlined below:

••Capital gains taxed Capital gains taxed

at nil rateat nil rate••Capital gains taxed Capital gains taxed

at nil rateat nil rate••Capital gains taxed Capital gains taxed

at nil rateat nil rate••Taxes due on Taxes due on

capital gainscapital gains

••Tax free issuance of Tax free issuance of

all dividends all dividends ••Tax free issuance Tax free issuance

of all dividendsof all dividends••Tax free issuance Tax free issuance

of all dividendsof all dividends••Taxes due on Taxes due on

dividends dividends

••Corporate Tax rate Corporate Tax rate

of 33 1/3%of 33 1/3%••Corporate Tax rate Corporate Tax rate

of 50% of the full of 50% of the full

prevailing rateprevailing rate

••Corporate Tax rate Corporate Tax rate

of Nilof Nil••Corporate Tax Corporate Tax

rate of 33 1/3%rate of 33 1/3%

JSE Main MarketJSE Main MarketJunior MarketJunior Market

22ndnd Five Year PeriodFive Year Period

(Tier 2)(Tier 2)

Junior MarketJunior Market

11stst Five Year PeriodFive Year Period

(Tier 1)(Tier 1)

Private CompaniesPrivate Companies

Timeline to AdmissionTimeline to Admission

•• Company incorporates as a public company in Jamaica or elsewhereCompany incorporates as a public company in Jamaica or elsewhere in in CARICOM regionCARICOM region

•• Company confirmsCompany confirms eligibility for tax concessionseligibility for tax concessions

•• Company appoints its mentor and signs up to Mentor AgreementCompany appoints its mentor and signs up to Mentor Agreement

•• JSE Board approves Mentor Agreement conditional on successful IPJSE Board approves Mentor Agreement conditional on successful IPO O and Admission.and Admission.

•• Junior Market Company drafts prospectus with mentor and other Junior Market Company drafts prospectus with mentor and other advisorsadvisors

•• JSE and FSC review, comment on, and confirm prospectusJSE and FSC review, comment on, and confirm prospectus

•• Prospectus registered with Companies Office of JamaicaProspectus registered with Companies Office of Jamaica

•• Prospectus published for 14+ days before launch of IPOProspectus published for 14+ days before launch of IPO

•• Junior Market Company launches IPO of equity shares Junior Market Company launches IPO of equity shares

•• IPO successful in attracting subscription of J$50m IPO successful in attracting subscription of J$50m -- $500m$500m

•• Company applies to JSE Board for admission to Junior Market provCompany applies to JSE Board for admission to Junior Market providing iding remaining shelf documentsremaining shelf documents

Life on the Junior MarketLife on the Junior Market

•• Further issues need not be equity shares, can be Further issues need not be equity shares, can be preference type shares or debt securitiespreference type shares or debt securities

•• Methods of further issue Methods of further issue -- not just IPO not just IPO -- can have can have placings, etc.placings, etc.

•• Periodic reporting: quarterly and audited annual Periodic reporting: quarterly and audited annual financial statementsfinancial statements

•• Timely disclosure of price sensitive information by public Timely disclosure of price sensitive information by public announcementannouncement

•• JSE Fees: initial fee, annual fee & supplementary fees JSE Fees: initial fee, annual fee & supplementary fees 50% lower 50% lower

Leaving the Junior MarketLeaving the Junior Market

•• By application of the Junior Market Company (but tax By application of the Junior Market Company (but tax

concessions may be lost)concessions may be lost)

•• In the event of certain takeovers, mergers or In the event of certain takeovers, mergers or

amalgamations: if surviving entity is no longer eligible amalgamations: if surviving entity is no longer eligible

to be a Junior Market Companyto be a Junior Market Company

•• If Junior Market Company mentor resigns and no If Junior Market Company mentor resigns and no

replacement is found within 30 daysreplacement is found within 30 days

•• If company is no longer eligible for the Junior Market, If company is no longer eligible for the Junior Market,

e.g. if subscribed equity increases above J$500Me.g. if subscribed equity increases above J$500M

•• By disciplinary action of the JSE Board for misconductBy disciplinary action of the JSE Board for misconduct

AcknowledgementsAcknowledgements

DISCLAIMERDISCLAIMER

•• This Material has been prepared by NCB Capital Markets Limited (This Material has been prepared by NCB Capital Markets Limited (“NCBCM”) “NCBCM”) and Patterson and Patterson MairMair Hamilton and is only for distribution as may be Hamilton and is only for distribution as may be permitted by applicable law.permitted by applicable law. It has no regard to the specific investment It has no regard to the specific investment objectives, financial situation or particular need of any recipiobjectives, financial situation or particular need of any recipient.ent. It is It is published solely for informational purposes and is not to be conpublished solely for informational purposes and is not to be construed as an strued as an offer to buy or sell any securities or related financial offer to buy or sell any securities or related financial instruments.instruments. References made to third parties are based on information References made to third parties are based on information obtained from sources believed to be reliable but are not guaranobtained from sources believed to be reliable but are not guaranteed to be teed to be accurate.accurate. It should not be regarded by recipients as a substitute for theIt should not be regarded by recipients as a substitute for theexercise of their own judgment.exercise of their own judgment. Any opinions expressed in this material are Any opinions expressed in this material are subject to change without notice and NCBCM and Patterson subject to change without notice and NCBCM and Patterson MairMair Hamilton Hamilton are not under any obligation to update or keep current the inforare not under any obligation to update or keep current the information mation contained herein.contained herein. NCBCM and Patterson NCBCM and Patterson MairMair Hamilton accept no liability Hamilton accept no liability whatsoever for any loss or damage of any kind arising out of thewhatsoever for any loss or damage of any kind arising out of the use of all use of all or any part of this material.or any part of this material. All information is deemed correct at the time of All information is deemed correct at the time of publication; additional information may be made available upon rpublication; additional information may be made available upon request. equest.