The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas International Securities Exchange (BISX) is aiming to release its proposed ‘commercial paper’ market structure this month, its chief executive yesterday saying the project was supported by “very compelling” needs.

Keith Davies told Tribune Business he was “ready to go” with a structure for this market, and hoped to unveil it at a Certified Financial Analysts (CFA) Society of the Bahamas meeting on September 26.

And he added that the proposal, which aims to provide a cheaper alternative to commercial banks when it comes to short-term financing for the Bahamian private sector, had received further encouragement from his recent meeting with a large, well-known company.

While refusing to reveal the business’s name, Mr Davies said the meeting had given him “positive, real life” encouragement that a Bahamian commercial paper market was badly needed.

“I’m trying to finish the commercial paper brief,” the BISX chief executive told Tribune Business. “I have a market structure ready to go. I would like to have that out this month. There are a few other things I’m looking at that may come into play, and I’m trying to get definitive on that.”

A Bahamian commercial paper market would represent a further evolution of this nation’s capital markets, broadening and deepening them, while also providing a significant fillip to capital-starved businesses.

It is totally different from fixed income securities, such as corporate bonds and preference shares, being akin to trade financing - a mechanism 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, who could demonstrate that they had assets and incoming cash flow to repay their financiers.

Mr Davies first unveiled the proposal in an exclusive Tribune Business interview in December 2012, and yesterday said: “There’s any number of businesses that do well from an operational standpoint, but there are always shortfalls, and inventory control and capital are two things companies are always dealing with.”

Recalling his meeting with the large company, and what a structured commercial paper market could do for it, Mr Davies said: “The avenues for them are obvious, and the benefits to them are obvious.

“That was a very positive, real life situation, and a very compelling reason to continue on with this project....

“The one thing I am dealing with now is to close this opportunity, the time to market, and being able to seamlessly offer and drop something that can be used for the market and for the benefit of companies.

In unveiling its plans to look at ‘trade financing’ and ‘commercial paper’, BISX pointed to Bahamian petroleum retailers as a prime example of the issues this aimed to solve.

Noting that many gas stations have run out of supplies temporarily in recent years, it 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, BISX could provide the platform to bridge that gap. Companies with temporary cash flow shortfalls would issue, via BISX, short-term debt securities to Bahamian investors, which would then be registered with the exchange.

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

Mr Davies yesterday described gas stations as “an obvious” user of BISX’s proposed commercial paper market, adding: “I don’t know how easily it can be translated into an opportunity for them.”

As to how much demand there might be for the product, Mr Davies said this would be determined by “need” and the Bahamian private sector’s “financing gaps”.

“The strength of the market is relative,” he added. “I look at it more in terms that it’s needed, there’s a gap in financing in the country, and to the extent that something fills that gap, that stimulates the market.

“Where we fill it with an opportunity people have to take advantage and make it what it can be. Financing, debt financing and business cash flows; these are all day-to-day issues that companies have to struggle and deal with, and to the extent that we can alleviate that we will have a willing market.”