The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas International Securities Exchange (BISX) has placed plans to create a short-term commercial paper/trade finance market “on the shelf” after the needs of potential business users changed.

Keith Davies, BISX’s chief executive, also told Tribune Business that plans for the exchange’s micro listing facility, the Small Alternative Market (SAM), were also “not moving at a very fast pace” due to the work required to ‘bridge the gap’ between capital sources and businesses.

BISX and Mr Davies first unveiled plans for the ‘commercial paper’ market during an interview with Tribune Business in late 2012, but the latter recently revealed that market needs had altered in the subsequent four years.

Emphasising that BISX’s products and services were always driven by the market’s needs, Mr Davies said: “Things have changed over the last months and years. The business focus and growth model has changed for a number of businesses.”

BISX’s 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 previously 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.

However, BISX’s chief executive said recently that the exchange had noted the increasing preference of Bahamian companies to raise financing through private debt placements, which typically took the form of preference shares.

“That has taken hold,” Mr Davies told Tribune Business, “and we want to see where things turn over the next 12 months.

“The things we talked about were different types of derivatives. It now requires a different model in terms of the approach the exchange has to take and required education.”

He added of the proposed ‘commercial paper’ initiative: “It’s something that’s not dead, but you do the hard work and put it on the shelf until you’re ready to pull it off.”

Had the proposal moved forward, BISX would have been 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.

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.

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

Mr Davies, meanwhile, said BISX’s immediate focus was the continued development of its proposed SAM market, plus expanding the pool of capital markets participants through investor education and an enhanced website.

The SAM would provide both capital access and a way to establish a track record for entrepreneurs and small and medium-sized enterprises (SMEs), who the exchange would ultimately hope graduate to its ‘main board listings’.

Mr Davies told Tribune Business that a major impediment to the SAM’s rapid progress was the need to develop a mechanism that matched entrepreneur expectations to their prospects of obtaining financing.

“All hands need to be on deck to make something like this work,” he said, “and to come up with avenues that make a market like this work - valued partnerships with companies seeking capital in alternative ways.

“A lot of persons need to have a reality wake-up call. Just because money is there to start up a new business doesn’t mean you will get it.

“You’re required to do a lot of work to have the concept proven, getting people to understand what you’re doing, to believe in what you’re doing, and that you’re serious about doing it.”

Mr Davies continued: “Capital doesn’t come to you because you want it. Capital is finicky, capital is discerning, capital is difficult at best. It’s hard to capture. Just because you want it doesn’t mean you will get it.

“We’re going to have to develop systems that bring together capital and business. The work that goes into making that function is very hard, and unfortunately the majority that come forward will not be successful.

“Pairing that reality with a market of our size means we have a lot of work to do if we will ever be successful putting in place something like this,” he added.

“This is primarily what is causing this to move at a very deliberate pace, which is not a very fast pace.”