The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas International Securities Exchange (BISX) has had to “take a step back” on several key expansion plans, as it works to “bridge the gap” between its vision and market reality.

Keith Davies, BISX’s chief executive, said that while its commercial paper/trade finance, micro business listing tier and non-traded securities initiatives all remained on the table, much work remained before they could take off.

“We had a meeting where we talked about all these issues on the table, and what stage of development they were at,” he told Tribune Business.

“Looking back, there needs to be a lot more work in terms of penetration of the market, because my vision of what it is need to meet the reality on the ground.

“Take a step back. That’s what we thought would happen, but the reality is what drives this. The size of the market is a limiting factor, it really is, but for these things to be operational we need a wider base than we have in the works,” Mr Davies added.

“We’ve got to be creative in the way we structure it to make sense for all parties concerned. The strategy is there, the thinking is there, and the structure it needs is there. It’s now who are the participants we are actually talking about; can they do it? That’s where we’ve got to bridge the gap.”

The BISX chief executive’s comments indicate that his growth plans have not progressed as fast as he would like, and that they need to be tailored to this market’s specific conditions.

Mr Davies and BISX first unveiled plans to create a ‘commercial paper’ market during an interview with Tribune Business in late 2012, but progress up until this point has been tough going.

The original idea was to provide an alternative - and cheaper - source of short-term financing than commercial banks, with both the Government and small businesses potential users.

Explaining that ‘commercial paper’ was something completely different to fixed income securities, such as corporate bonds and preference shares, Mr Davies said it was 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.

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 had run out of supplies temporarily over the past year or two, 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. The ‘commercial paper’ would also seek to improve business planning and reduce financing costs.

Meanwhile, BISX’s micro/small business listing facility - a project long in the planning stages - would provide both capital access and a way to establish a track record for companies ultimately seeking to graduate to its ‘main board’.

And Mr Davies also previously said BISX was exploring the creation of a separate listing category for ‘non-traded’ securities. This, he explained, 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 facility, which would be “segregated” from BISX’s ‘main board’ 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.

Mr Davies, meanwhile, said discussions on each of BISX’s three potential initiatives were being held with its shareholders, market participants and the Securities Commission.

He also emphasised that he was not being critical of the Bahamian capital markets’ relatively small size, adding: “It’s done well, and it makes sense.”

Mr Davies suggested that BISX needed to adopt the same approach to its expansion initiatives as it had used with its ‘main board’ listings, letting them grow naturally and organically.

“It may not make sense today,” he said of BISX’s plans, “and unless we take the steps to do the planning and put in the infrastructure, it will not be in place for future growth.

“We’re going to lead where we can, and have to, and take those steps to impact the market.”

Mr Davies further described BISX as being in “an evaluation stage”, with new chairman Adrian Strachan providing “a fresh set of eyes” in assessing all the initiatives it has on the drawing board.

“Part of the next step is to assess where we are,” he added. “We know the required things that need to be done in the market - increasing listings, increasing participation and choices. These are the ball park things that every jurisdiction in the world wants to do.”

Mr Davies confirmed that BISX was in discussions with the Government, and its advisers, over the listing of the two new Bahamas Government Stock (BGS) issues - worth more than a collective $150 million - on the exchange.

Describing this as “a natural progression” and “a step in the right direction”, Mr Davies told Tribune Business: “It’s one of those things that we need to happen.

“It’s not about speed. It’s about doing it right, and when the market is where it needs and wants it, it’ll happen. I’m looking forward to the next few years, as we expect to grow our listings and expand government participation at all levels.”