The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas International Securities Exchange (BISX) yesterday said it was targeting “trade financing” and ‘non-traded’ securities listings for development in 2013, as it prepares for its “adolescent growth spurt”.

Noting that the 12 year-old exchange was entering its ‘teenage years’, Keith Davies, BISX’s chief executive, told Tribune Business that the Bahamas’ sole stock exchange had “turned the corner” when it came to financial profitability.

While declining to disclose any figures, he said BISX’s management was now moving to take the exchange “to the next level” via the development of new products and services, in a bid to diversify and expand the Bahamian capital markets and its participants.

Among the ideas targeted for development in the upcoming year is ‘trade financing’. BISX executives explained that this did not involved the funding of imports/exports, but instead providing a platform for Bahamian companies to issue short-term debt securities to buyers as a way of overcoming temporary cash flow issues.

Effectively, BISX would be facilitating an alternative to bank overdrafts, bridging loans and letters of credit (LOC) for creditworthy companies, executives pointing to gasoline stations as a prime example.

And the exchange is also exploring the creation of a separate listing category for ‘non-traded’ securities. This, Tribune Business was told, would be an “incubator-type” facility targeted at Bahamian companies that did not want to go public, but had the size and characteristics of firms that were.

In essence, this facility is designed as a ‘stepping stone’ to such companies eventually going public, while also providing a platform to market themselves to Bahamian investors.

“The two items that we’re really considering for our future plans and new product development in 2013 and beyond would be trying to create a new class and category of listed securities,” Mr Davies told Tribune Business.

“These securities are listed but not traded. It’s an incubator-type of listing for companies not necessarily wanting to be public, but have the size and capacity to be, and one day may consider entering the public domain.”

He added that the facility, which would be “segregated” from BISX’s ‘Main Board’ of 27 listed securities and have its own website, would allow these companies to “take advantage of the exchange to get the word out about their operations”.

Explaining that the service would also allow Bahamian companies to get used to a regulated environment, Mr Davies said BISX had frequently encountered companies that had indicated an interest in using the capital markets.

While the structure, and rules and regulations, for such a ‘non-traded securities’ listing facility were still being developed, the BISX chief executive said: “I know that over the years we’ve spoken to any number of companies that might be interested in something like this...

“I think that behind this, if you look at the US, they have the ‘over-the-counter’ market, but they also have these private pools of companies that are not public but do everything as if they are.

“What happens with these companies, like Facebook, is they become so liquid, so traded, the regulators say they have to file [for an IPO].”

And Mr Davies added: “We want to mature the market. BISX’s goal is that any eligible security out there, we want to bring it to the market.

“That is the basis of the new products that we’re trying to bring to bear.”

He told Tribune Business that the exchange would be “particularly conscious” of the fact companies listed on the ‘non-traded securities’ tier were not publicly listed entities.

“We don’t want to give the perception to the public these companies are preferred or good investments if they decide to proceed,” Mr Davies explained.

“All it’s saying is: ‘Here it is, look at me, and take an impartial view of me [the listed company].”

Promising that anything BISX did would be reviewed and approved by the Securities Commission, Mr Davies said ‘non-traded’ companies would not be subject to the same requirements as its public issuers.

“The concerns are always whether that forces them to into a regulatory environment and regulatory costs that cause them to cross the barrier,” the BISX chief executive acknowledged.

“But the thinking is that in order to be put on this listing, you should have some years of operations, some financials supported by an auditor. We’ll see where it goes. It’s something we intend to do.”

On the trade financing side, Holland Grant, BISX’s listings manager, pointed to Bahamian petroleum retailers as a prime example of the corporate issues this aimed to solve.

Noting that many gas stations had run out of supplies temporarily over the past year or two, Mr Grant said this resulted from oil price volatility, with new inventory costing more than what they sold the previous batch for.

As a result, Bahamian gas retailers faced temporary cash flow shortages, which they were finding difficult to immediately address as banks became more averse to extending overdrafts and the like to the industry.

Via its trade financing product, Mr Grant said BISX could provide the platform to bridge that gap.

“The idea is creating some kind of trade financing market to help those businesses with cash flow shortfalls,” Mr Grant told Tribune Business.”It helps business growth and business development.”

Major commercial banks often filled the ‘trade financing’ role in developed markets, but in the Bahamas “we don’t have that happen as much as we should”.

“Maybe the capital markets can provide the solution,” Mr Grant told Tribune Business. “It’s a product that’s going to develop and help the dynamism of the Bahamian economy.”

The ‘trade financing’ market would see companies with temporary cash flow shortfalls issue, via BISX, short-term debt securities to Bahamian investors, which would then be registered with the exchange.

“We understands the players. We understand what is necessary,” Mr Grant said. “What the exchange can bring to bear is that you typically want a neutral party that can represent, register and trade those securities.

“It’s almost a substitute for letters of credit, short-term financing, and it’s a mechanism that exchanges and capital markets are designed for. We want to formalise it in some way, an eligible paper market for credible operating companies that have cash flow, cash shortfall issues.”

Mr Davies said retail businesses that needed inventory and restocking could also use such a facility, as opposed to a bridging loan or overdraft.

Companies issuing ‘trade finance’ securities would have to provide certain level of information to buyers, and BISX would develop a set of rules and model for how it would work.

Mr Davies added: “I feel good that we can make this a reality.”

The BISX chief executive told Tribune Business that the two products were part of “the adolescent growth spurt we hope to have”.

And he added: “We’ve got to take it to the next level now. We’ve turned the corner, and we’re taking steps to drive on even harder and faster, and are pushing to build on the steps already made.”