Sabrina Gordon, Business Reporter

The FSC building in New Kingston. - File

The Financial Services Commission (FSC) has relaxed its rules for the private placement of securities, which dealers here say should lead to a more robust Jamaican capital market.

"We think (the guidelines) will bring more certainty to the private placement process and also provide more options for getting private placement done," said Dylan Coke, assistant vice-president for business development at NCB Capital Markets.

Until the new rules came into effect in mid June private placements were limited to a maximum of 50 persons and the security was not traded.

Issues involving more than 50 persons were considered public placement for which the issuer had to provide a prospectus and engage in other expensive undertakings. For a public placement the issuer would have to publish a minimum of 500 prospectuses.

"I would say (the cost to prepare a prospectus is) somewhere between $3-5 million depending on how many you publish, type of artwork etc," said Philip Armstrong, assistant vice-president at PanCaribbean Bank.

With the new rules many of the restrictions which dealers say militated against placements have been lifted and private placements can be issued under four broad categories:

Accredited investor;

Minimum purchase amount;

Private issuer; and

Highly rated debt securities.

"We have adjusted the rules to raise money without having to comply with the rigorous requirement of filing a prospectus with the FSC," said Laurence Crossley, the senior security analyst at the FSC.

"The exempt distribution guidelines mirrors what is happening in Trinidad and Tobago, Canada and the United States and will give us a more robust capital market similar to these countries," he said.

Private placements

But Crossley cautioned that even though issuers of private placements will not be required to file a prospectus with the FSC, they will still have to comply with the relevant provisions of the Companies Act, if required.

As defined by the new rules, a person participating in an issue under the accredited investor option must have a net worth of $50 million or $10 million annual income before taxes, while corporations are required to have net assets greater than $250 million.

This criterion, according to Crossley, is in line with the US, Canadian and Trinidadian capital market models from which the guidelines were adopted. In Trinidad and Tobago, individuals using this option must have TT$500,000 net financial assets. In the United States the requirement is US$1million net worth, while in Canada the demand is for C$5 million net worth or C$1million in financial assets.

Minimum purchase option

The minimum purchase option says that securities must be acquired at a minimum cost of $10 million. Under this option special purpose vehicles, that is, companies set up for the sole purpose of investing in a specific security and portfolio packaging are not eligible.

The option of being a private issuer allows for an increase in the maximum number of shareholders in a private company to move from 20 to 50. Persons eligible to purchase in this issue are limited to directors in the company, officers, employees and close business associates of directors and senior management.

The highly rated debt instrument is one which must have a 'triple B' rating issued by a rating agency that is recognised by the FSC. So far, the regional debt-rating agency, the Port-of-Spain-based CariCris, has sought registration with the FSC.

Recognition mechanism

The FSC's Crossley acknowledged that big, global debt rating agencies like Standard and Poor's or Moody's were unlikely to register with the Jamaican securities commission, "so we are looking at other ways to incorporate them in the recognition mechanism".

"If an agency is recognised by a Securities Commission that is recognised by the FSC, for example, the United States Securities Commission, then we will go ahead with the issue," he said.

While analysts generally welcome the move by the FSC, most say that there was need for some tweaking of the rules, which is being put to the commission.

"Although there are some areas where amendments or clarifications are required, I think it is fair to say that the new guidelines will assist in opening up the capital markets," said NCB Capital Markets' Coke.

sabrina.gordon@gleanerjm.com

Phillip Armstrong - File