When Caribbean insurers Barbados Mutual and Guardian Holdings were vying to acquire Life of Barbados last year, the winning bid from Barbados Mutual was small by U.S. standards — a $125 million deal. It was, however, big news in the Caribbean — a gargantuan deal between two of the largest companies in the region — even though the proceeds came to millions rather than billions.
Caribbean business leaders, though, say that doesn’t always have to be the case. A regional stock exchange — whose backers include Ernst & Young Caribbean, all four national stock exchanges, and the Caribbean Association of Industry and Commerce — would not only increase the value of future mergers and acquisitions by making it easier to raise capital, but also boost the region’s economy and help reduce its reliance on tourism and agriculture.
“If the Caribbean governments say they’re committed to a single market economy, then we need to have a regional stock exchange for that single market,” says Timothy Nafziger, whose company publishes Caribbean Investor magazine. “Right now, the scales are too small on the national stock exchanges. A regional exchange is the next logical step.”
Globalization has not skipped the Caribbean. Its countries, once seen as little more than a bunch of islands with beaches and tourists, have liberalized trading, investment, and currency regulations to attract investment from inside and outside the region. Once, exchange controls, ownership rules, a lack of companies that would interest foreign investors, and a culture that said local companies would never sell to outsiders all seemed to conspire against foreign investment. Now, governments and business groups have changed that so dramatically that CEMEX, the Mexican cement giant, nearly grabbed Trinidad Cement in a hostile takeover last year, something that would have been unimaginable a decade ago.
Meanwhile, CARICOM, the 14-nation Caribbean Community, wants to establish a Caribbean-wide Common Market, free of all trade restrictions, by 2005. And there is already a CARICOM-wide regional stabilization fund to lend cash to ailing member states.
Those developments may provide the political will for a Caribbean exchange that has been lacking in the past. “The main advantage seen for having all companies listed on a single exchange is more efficient trading, greater stability and transparency, and enhanced access to capital,” says Gary Voss, a former managing director of Lever Brothers West Indies and currently the president of the CAIC.
Three plans have been floated to form the regional exchange:
Merging the four national exchanges. A 2001 Ernst & Young report called a single Caribbean exchange imperative, adding that “we cannot allow the personal agendas of a few, maybe due to the different ownership structures of the existing stock exchanges, to dissipate the commitment and slow down the pace of change that is required to integrate our regional capital markets and support the single market and economy.”
Creating a super-exchange, with the four national exchanges as members. This would solve some of the problems of a merger, but has not garnered much support.
Using the OECS exchange, with its cutting-edge technology, to process trades for the other national exchanges and serve as the de facto regional marketplace. This option, says Voss, has attracted the most interest from the Caribbean business community.
But obstacles to all these plans remain.
Plans for a regional Caribbean stock market have been around since the late 1980s, but have floundered for a variety of reasons — political indecision, currency conversion difficulties, and a tangle of bureaucracy. “There are so many complex political and bureaucratic issues involved,” Voss says.
Foremost among them is the task of combining the four existing national exchanges — in Jamaica, Barbados, Trinidad and Tobago, and the Organization of Eastern Caribbean States (nine independent states that share a currency). Each has its own trading rules and system, its own ownership structure, and its own regulatory environment. And though it’s legal — and
encouraged — to list on all exchanges, only three companies are listed on three and only nine companies are listed on
at least two. Old habits, says Nafziger, die hard.
Complicating matters further is that most of the companies, although public, are closely held. Many have bylaws limiting public offerings to 20 percent of their shares. And none of the exchanges is especially big. Jamaica, with 33 companies, is the largest, compared with 2,800 on the New York Stock Exchange. The OECS exchange is the most technologically advanced, with electronic trading, but has only two companies listed.
This time, business leaders say, things may be different. A regional stock exchange, as well as other forms of regional economic cooperation, grows more and more attractive as the Caribbean common market comes closer to reality. “It’s going to happen,” says Nafziger. “The region is committed to it. The only thing we have to figure out is how we’re going to do it. And the pressure to do that will increase the closer we get to 2005.”
Which would give more people a chance to invest in Barbados Mutual, next time it decides to make an acquisition.
The Caribbean economy is more than bananas and tourists. The publicly traded companies — which could become powerhouses with the greater access to capital a regional exchange would provide — include some intriguing investments (all revenue figures are for 2001):
Grace, Kennedy & Company ($325 million revenue): A Caribbean conglomerate with interests in shipping, finance, and food manufacturing. Earnings increased 120 percent over the past five years.
CIBC West Indies Holdings ($390 million revenue): This Barbados bank, already the largest publicly held company in the region, is negotiating a merger with Barclays Caribbean. If it comes off, the new company would have assets of $9 billion, making it as large as a U.S. regional bank.
D&G ($108 million revenue): This company, a Guinness subsidiary, brews Red Stripe, Jamaica’s national beer. Earnings are forecast to grow 30 percent from 2001 to 2002.
WITCO ($62 million revenue): The Trinidad cigarette subsidiary of British American Tobacco has seen its share price increase 180 percent in the past two years.
Prestige Holdings ($48 million revenue): Prestige, based in Trinidad, is a leading Caribbean franchisee for Pizza Hut, KFC, and TGIFriday’s. Profits increased 21 percent from 2000 to 2001.