by Dionisia Tabureguci
 |
| At the helm...Jinita Prasad |
For 27-year-old Jinita Prasad, the euphoria of having been
appointed chief executive officer of the South Pacific Stock Exchange
(SPSE) is already fading.
After a month on the job, the former
associate director of investment bank, Kontiki Capital Limited (KCL),
has already zeroed in on the most daunting task before her: how to solve
the liquidity problem in the market.
There is no soft diplomacy in her approach to this issue.
There is no soft diplomacy in her approach to this issue.
It
is a point blank discussion on the state of Fiji's fledgling share
market where, when she says 'liquidity', what she is really describing
is how easily shares could be converted to cash.
And when she says 'turnover', she means the total number of shares traded.
These two terms, in sharemarket lingo,
are closely related in the sense that the higher the turnover for a
particular stock, the more the chances that it is 'liquid', or easily
converted to cash.
"Right now, with the turnover being very low, the first challenge of the exchange is survival," says Prasad.
"We are getting a grant from the government and we are dying to get more listings. But at the end of the day, it comes down to survival.
"Right now, with the turnover being very low, the first challenge of the exchange is survival," says Prasad.
"We are getting a grant from the government and we are dying to get more listings. But at the end of the day, it comes down to survival.
"There
are those who believe that the stock exchange fees should go down
because it would increase the number of people trading at the stock
exchange.
"On the other hand, it's a basic fact
that when the turnover increases, fees will automatically go down
because we will be making money on the turnover.
"So it is a 'chicken-and-egg situation'...should we reduce the fees to increase the turnover, or wait for the turnover to increase and then reduce the fees because then, you can survive?"
For each trade executed at SPSE, the buyer and seller investors each pay brokerage fees to their brokers and an additional one percent of the total value of their transaction to be shared between SPSE and Capital Markets Development Authority, the market regulator.
The investors also pay a $5 settlement fee that goes to SPSE. Fees are therefore part of the exchange's revenue source. But its flagged performance has largely been due to the chronic lack of scrip supply.
Even at a time like the present when the market has been quite bullish and demand increasing for most listed stocks, there is hardly a selling spree.
"So it is a 'chicken-and-egg situation'...should we reduce the fees to increase the turnover, or wait for the turnover to increase and then reduce the fees because then, you can survive?"
For each trade executed at SPSE, the buyer and seller investors each pay brokerage fees to their brokers and an additional one percent of the total value of their transaction to be shared between SPSE and Capital Markets Development Authority, the market regulator.
The investors also pay a $5 settlement fee that goes to SPSE. Fees are therefore part of the exchange's revenue source. But its flagged performance has largely been due to the chronic lack of scrip supply.
Even at a time like the present when the market has been quite bullish and demand increasing for most listed stocks, there is hardly a selling spree.
Fee reduction
"In January, we removed the five dollars settlement fees that we normally charged and we are closely monitoring the market to see if there is a link between this and any increase in turnover. If so, then we may be looking at a further fee reduction."
One way of looking at the problem is that unsatisfied demand exists because the number of companies listed on SPSE is not enough to give the interested investor a wide range of stocks to choose from and perhaps increase the chance of finding willing sellers.
The investor is restricted in the sense that he or she may only choose from the 16 companies currently listed.
Without willing sellers, buyers have few other choices apart from either waiting for someone to sell or trying to entice a seller by offering to buy at a higher price.
This is the scenario described by Prasad as being the status-quo at the exchange facility.
The most sensible thing to focus on now is to get more companies on the board and this has been an ongoing challenge inherited by every CEO heading SPSE.
Prasad inherits this challenge at a time when a considerable effort has already been put into educating the public on the benefits of investing, as well as awareness campaigns taken to a host of profitable small private companies, most of them family-owned, on the benefits of listing on the stock exchange.
Prasad herself had been part of that process.
"What the exchange intends to do now is to target specific people or specific companies and get them to start thinking about listing," she says.
"The good news is that there is a lot of private equity investments happening in Fiji and with any private equity investment, the exit strategy is usually through the stock exchange.
"So people get into private equity, go through R&D stage, development stage and once they want to exit, they list their shares.
"It's the same for investment institutions that enter private equity partnerships. They know that at the back of their minds that they will realise their value and will have to come out. That exit is usually done through the stock exchange."
Prasad's previous corporate incarnation comes in handy at this point because a greater part of it involved marketing the idea of listing on the SPSE to many local companies, including the family-owned ones.
She was also involved in the concept creation of the now listed Kontiki Growth Fund, an investment arm of KCL that actively seeks equity partnerships in local companies.
That background is Prasad's strong point and helps her identify problem areas from a different perspective, as well as map out strategies that apply to a situation she is already familiar with.
"My aim is to provide solutions but before doing that, I have to identify what the problems or challenges are.
"I have put them in two categories; the short and long-term. A lot of the challenges are long-term ones. For the short-term, things are looking good.
"Our turnover is improving every month and our market capitalisation has gone over a billion dollars.
"As long as we have a steady supply of one or two listings per year, it should keep things on track.
"But for the long-term, if we want to get a steady flow of listing or a sharp increase in turnover, we will have to look at other strategies.
"At that point, we will need the support of the government.
"In the past, the exchange had continuously submitted to the government to have tax differentials for listed companies.
"Meaning that companies that come to list would be entitled to pay tax in a lower bracket than those that are not listed.
"This sort of thing has worked in other countries. Mauritius is a good example. When its government approved the tax differential, the number of listed companies increased.
"So we would like to go to the government and say that we have proof, we have real case studies which show that tax differentials really do increase the number of listings.
"We will keep campaigning and lobbying that idea with the government," says Prasad.
In that regard, she continues on from where her predecessor Sanjay Sharma left off.
However, it will be done "more aggressively" and hand-in-hand with increased public education to be done in conjunction with the CMDA.
There are also a few possibilities that she is looking at, possibilities that would have sounded like wishful thinking six years ago when she first came on the scene.
Puzzle
"Things like having a derivatives market where stock options and futures could be traded, or asking overseas-listed companies present in Fiji to also consider listing on the SPSE.
"They are sounding more and more achievable now and Prasad hopes to be in the thick of it as CEO when they happen.
"There are a lot of things we can do but it all comes down to liquidity. Everything is bottlenecked there, so that is what I mean when I say 'challenges'. You start to feel like you're going around in circles.
"Companies want to list but they say there is no liquidity. But then you can't have liquidity if companies don't list because there is no scrip to buy. It's like a puzzle. What to do first in order to make the next thing happen when the next thing is dependent on the first thing.
"But I think it will have to be tackled as it comes," she says.
That being the paradox that the stock exchange is in, Prasad knows she must achieve at least one definite goal and that is to get five more companies listed during her three years at the helm.
"In January, we removed the five dollars settlement fees that we normally charged and we are closely monitoring the market to see if there is a link between this and any increase in turnover. If so, then we may be looking at a further fee reduction."
One way of looking at the problem is that unsatisfied demand exists because the number of companies listed on SPSE is not enough to give the interested investor a wide range of stocks to choose from and perhaps increase the chance of finding willing sellers.
The investor is restricted in the sense that he or she may only choose from the 16 companies currently listed.
Without willing sellers, buyers have few other choices apart from either waiting for someone to sell or trying to entice a seller by offering to buy at a higher price.
This is the scenario described by Prasad as being the status-quo at the exchange facility.
The most sensible thing to focus on now is to get more companies on the board and this has been an ongoing challenge inherited by every CEO heading SPSE.
Prasad inherits this challenge at a time when a considerable effort has already been put into educating the public on the benefits of investing, as well as awareness campaigns taken to a host of profitable small private companies, most of them family-owned, on the benefits of listing on the stock exchange.
Prasad herself had been part of that process.
"What the exchange intends to do now is to target specific people or specific companies and get them to start thinking about listing," she says.
"The good news is that there is a lot of private equity investments happening in Fiji and with any private equity investment, the exit strategy is usually through the stock exchange.
"So people get into private equity, go through R&D stage, development stage and once they want to exit, they list their shares.
"It's the same for investment institutions that enter private equity partnerships. They know that at the back of their minds that they will realise their value and will have to come out. That exit is usually done through the stock exchange."
Prasad's previous corporate incarnation comes in handy at this point because a greater part of it involved marketing the idea of listing on the SPSE to many local companies, including the family-owned ones.
She was also involved in the concept creation of the now listed Kontiki Growth Fund, an investment arm of KCL that actively seeks equity partnerships in local companies.
That background is Prasad's strong point and helps her identify problem areas from a different perspective, as well as map out strategies that apply to a situation she is already familiar with.
"My aim is to provide solutions but before doing that, I have to identify what the problems or challenges are.
"I have put them in two categories; the short and long-term. A lot of the challenges are long-term ones. For the short-term, things are looking good.
"Our turnover is improving every month and our market capitalisation has gone over a billion dollars.
"As long as we have a steady supply of one or two listings per year, it should keep things on track.
"But for the long-term, if we want to get a steady flow of listing or a sharp increase in turnover, we will have to look at other strategies.
"At that point, we will need the support of the government.
"In the past, the exchange had continuously submitted to the government to have tax differentials for listed companies.
"Meaning that companies that come to list would be entitled to pay tax in a lower bracket than those that are not listed.
"This sort of thing has worked in other countries. Mauritius is a good example. When its government approved the tax differential, the number of listed companies increased.
"So we would like to go to the government and say that we have proof, we have real case studies which show that tax differentials really do increase the number of listings.
"We will keep campaigning and lobbying that idea with the government," says Prasad.
In that regard, she continues on from where her predecessor Sanjay Sharma left off.
However, it will be done "more aggressively" and hand-in-hand with increased public education to be done in conjunction with the CMDA.
There are also a few possibilities that she is looking at, possibilities that would have sounded like wishful thinking six years ago when she first came on the scene.
Puzzle
"Things like having a derivatives market where stock options and futures could be traded, or asking overseas-listed companies present in Fiji to also consider listing on the SPSE.
"They are sounding more and more achievable now and Prasad hopes to be in the thick of it as CEO when they happen.
"There are a lot of things we can do but it all comes down to liquidity. Everything is bottlenecked there, so that is what I mean when I say 'challenges'. You start to feel like you're going around in circles.
"Companies want to list but they say there is no liquidity. But then you can't have liquidity if companies don't list because there is no scrip to buy. It's like a puzzle. What to do first in order to make the next thing happen when the next thing is dependent on the first thing.
"But I think it will have to be tackled as it comes," she says.
That being the paradox that the stock exchange is in, Prasad knows she must achieve at least one definite goal and that is to get five more companies listed during her three years at the helm.
----
NOTE:
This article was published in Fiji Business as New stock exchange head gets down to business, April 2006.
Fiji Business is produced as part of Islands Business Magazine
Islands Business is the flagship publication of Islands Business International.
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