Strategic Alliances: The Pathway to Institutional Strengthening & Global Excellence

Two strategies have proven invaluable to progress. The first: the embrace of technological advancements; the second: the formation of strategic alliances. These combined strategies are building Barbados – a nation now awash with both talent and innovation. While valued, perhaps, for their pecuniary potential, these strategies are also leading us to a future of promise.

Going Global

Like Barbados, the Barbados Stock Exchange (BSE) has embraced a global focus. This began with our corporate demutualisation – which was the strategic reorganisation, in December 2015, of our legal structure. Thereafter, we launched our International Securities Market (ISM) which has positioned us, truly, as a global exchange.

Procuring ‘exchange recognitions’ is our contemporary focus and an incremental step towards building global credibility. With a handful of markets strategically identified – including Canada, the United Kingdom (UK) and the United States (US); for starters – the BSE is poised to become an exchange of consequence; a development that will redound to the benefit of Barbados.

Our efforts, thankfully, have been met with success. As such, we are pleased to report that we are now duly designated as a ‘Recognised Stock Exchange’ by Her Majesty’s Revenue and Customs (HMRC). This designation was achieved on 2 April 2019, and was conferred, in the UK, under Section 1005 of the Income Tax Act (2007).

A material implication has arisen as a result: for securities residing in any of our markets, HMRC’s definitions of either ‘listed’ or ‘not listed’ will apply for the purposes of legislation in the U.K. This will certainly be a boon for our exchange. Additionally, securities will still retain their inherent coverage under the securities legislation of the Laws of Barbados.

HMRC’s designation is highly strategic, and has enabled us to offer:

1. eligibility for BSE-listed securities to be included in both UK pension funds and UK Individuals Savings Accounts (ISAs);

2. the potential for inheritance tax allowances to accrue to UK holders of BSE-listed securities; and

3. holders of satisfying BSE-listed debt securities the ability to avail themselves of the Quoted Eurobond Exemption (QEE) – a mechanism that ensures an exemption from withholding taxes on distributions.

Further, while the benefits above are outlined for investors, there are, of course, clear benefits for issuers (whether local, regional or international in origin):

1. Listing securities on the BSE’s HMRC-recognised markets can provide market eligibility for them to be offered directly, or as part of a packaged offering, to the gamut of investors resident in the UK;

2. Companies looking to finance acquisitions can use the BSE’s HMRC-recognised markets for structured finance transactions. We envision a growth in the use of special purpose vehicles (SPVs), which are subsidiary – bankruptcy-remote – corporate entities that can be used for either risk sharing, securitisations, property sales, or asset transfers.

3. By lending funds through the BSE’s HMRC-recognised markets, UK companies can enhance their access to global capital. This is largely due to the fact that international investors can receive interest payments (without deduction) as a result of availing themselves of the QEE.

The BSE intends, by the end of 2020, to secure similar designations in Canada and the US. Though the benefits derived will be similar to HMRC’s, they will accrue, instead, to investors resident in Canada and the US respectively.

The Case for Strategic Alliances

A driving force behind our global focus is the BSE’s desire to support Barbados’ resurgence. Though our island is renowned for its excellent tourism, our greater economy has been mired in stagnation. This persisted over the last decade of our history, forcing us in 2018 to enter a four-year Extended Arrangement under the Extended Fund Facility (EFF) of the International Monetary Fund (IMF). It was hoped that this would stabilise our economy by shoring up funding for productive development. Barbados is now on an upward trajectory. While real economic activity has been down by 0.2 per cent from January to September of this year[i], this was expected as a result of the current structural adjustments and reforms in operation on the island. Bolstering our competitiveness, therefore, is a national objective that enjoys bipartisan approval and universal commitment.

The BSE believes that strategic alliances are an essential ingredient for transformative development. It is here that we can play a role as an ally; we believe that Barbados can be once again an attractive domicile for investment through the commercial application of our international designations/recognitions. A strategic beneficiary will be the Caribbean region, in large part because a listing (or cross-listing) on the BSE’s markets can attract the additional (and valued) investment participation from the Caribbean diaspora outside the region[ii]. Not only can the BSE allow them to invest comfortably (and confidently) in their homelands, they can do so from their new domiciles while benefitting further from the incentives our designations confer. Investors in Barbados stand to benefit as well. Whether one is an individual or an institutional investor, cross-listings on our board will increase the number of tradeable securities in our markets. It is simply not possible for this benefit to be overstated: not only would this be of benefit to investors already active in our markets, the introduction of additional securities may also serve attract (and unleash) some of the estimated BDS$9.6 billion dollars that is locked within the low-interest deposit accounts of the commercial banking sector in Barbados.

To broker these new and exciting alliances, the BSE team has been travelling with our pitch. In March 2019, a team from the BSE visited Guyana to take consultative meetings with the Guyana Association of Securities Companies and Intermediaries (GASCI). This preliminary deliberation uncovered many similarities between our exchanges; for example, much like we did (in our early operations), GASCI conducts trading on select days of the week with brokers meeting at the Exchange’s headquarters for trading. Further, their exchange presently lacks a Central Depository, which means that share registers are currently maintained by a handful of brokers and other authorised professionals (mainly law firms). It was from these discussions that the BSE promised to buttress GASCI’s institutional strength through cross-listings of securities between our respective boards. To cement this commitment, we were pleased to sign off on a Memorandum of Cooperation (MoC) between our two Exchanges on March 15, 2019.

Additionally, discussions were tabled between the Government of Barbados with a trade mission from Kenya in early September 2019. The BSE was privileged to have an audience with the Governor of the Central Bank of Kenya, which led to a fruitful discussion in lieu of a draft Memorandum of Understanding (MoU) being prepared between ourselves and the Nairobi Stock Exchange (NSE)[iii]. The BSE was also part of a trade mission to Ghana in November 2019. We hope to foster a binding relationship with their national exchange: the Ghana Stock Exchange (GSE) located in the capital, Accra. These trips bode well for our future development and are part of the larger Caribbean Community (CARICOM) commitment of strengthening ties with trading partners in Africa.

On the domestic front, we continue to educate our local business owners on the benefits of procuring equity financing through publicly listing on the board of our Exchange. We are committed to serving as an engine of change that facilitates wealth creation through connecting sources and users of capital. Our messaging, therefore, has become holistically clear: a BSE listing provides an exit strategy for private equity investors, assists in the independent valuation of a companies, and encourages the adherence to strong corporate governance practices.

While larger companies, with their established sources of capital, may not require a listing for capital formation, Small-to-Medium size Enterprises (SMEs) are always on the lookout for funding. SMEs have become true engines of economic development. In fact, the growth of their sector in many countries has usually impacted key macroeconomic indicators, including Gross Domestic Product (GDP), employment, exports and tax receipts. The BSE believes we can assist these companies, particularly those positioned on a route for growth. To facilitate this, we revitalised our Junior Market. Starting with a rebranding exercise, the former Junior Market of the BSE was officially rebranded as the BSE’s “Innovation and Growth Market” (IGM) at a breakfast meeting on July 2, 2019. The resulting dialogue led to several fruitful discussions. The BSE is proud to enjoy constructive, ongoing dialogue with key SME champions such as the Minister of Small Business, Entrepreneurship and Commerce, the Honourable Dwight Sutherland, and the Chief Executive Officer of the Small Business Association of Barbados, Ms. Lynette Holder. Over the short- to medium-term horizon, we intend to collectively identify a select number of SMEs that may be prime candidates for a BSE listing. Thereafter, and over the long-term, it is our goal to create an innovative environment that encourages SMEs to grow and thrive.

The Barbados Opportunity

Barbados is a land of sea and sun with the timeless allure of sensational living. While patently the trappings of the cursory glance, they can obscure, on occasion, our commercial propositions.

The BSE’s proposition is decidedly clear: by becoming a platform with global connectivity, the exchange can transform into a confluence for capital. This is a proposition of appreciable significance that is of appeal to Barbados’ International Business and Financial Services (IBFS) sector (as it relates to our exchange recognitions) and the SME sector (as it relates to our IGM initiatives). Support from these sectors will be critically important and will be the assets that contribute to Barbados’ perennial reputation as a trusted jurisdiction for capital accretion.

The BSE is committed to its transformative development and is thankful for the support from a cadre of stakeholders. Not only has this empowered us to redefine our purpose, it has positioned us to grow as Barbados’ cabochon – forever to be remembered as the gem of the Caribbean.

 

[i] http://www.centralbank.org.bb/Portals/0/Files/September%20Press%20Release.pdf

[ii] Particularly those that reside in the U.S., Canada, and the U.K.

[iii] The MoU is currently awaiting ratification.