BSX backs 60/40 rule relaxation
Relaxing the Island’s 60/40 rule could help local companies raise significant capital in the challenging economic times.This is according to financial analysts, who said if Government changed the rule and allowed more domestic companies to sell their shares to foreign investors it would boost liquidity on the Bermuda Stock Exchange.The Exchange’s president and CEO Greg Wojciechowski said that opening up the market is something the BSX would back.“Anything that further modernises the domestic capital market and encourages investment is something that would be supported by the BSX,” Mr. Wojciechowski said.“A fluid, modern capital market is important to the economic well-being of the country and it benefits the shareholders and the companies by creating an environment in which to raise capital.”At this time only Butterfield Bank and Bermuda Commercial Bank are not bound by the 60/40 rule, but other local companies are.HSBC is not considered a local company.As of March 8, 2011, Butterfield Bank made up well over half of the entire BSX market capitalisation, with the total market value of its outstanding shares worth $713.8 million. (see factbox)Despite the limitations here, Mr Wojciechowski said to date the BSX has helped local companies raise $1.5 billion in new capital.The 60/40 ownership rule means that any company that’s listed as a local company must be owned by a 60 percent majority of Bermudians or Bermudian companies, the other 40 percent can be owned by people or institutions from outside Bermuda.Paul Cox, Premier and Finance Minister, said: “The Bermuda Government is currently engaging in discussion with both publicly-listed and privately-held companies in order to arrive at a position which is in the best interest of the country.“I indicated in a speech just yesterday on PPP public private partnerships that it is ‘game-on time’. In essence, this means we have to look at bold and innovative measures as we seek to spur greater economic activity and also to spur job creation and retention.“Access to capital for business, both in a global and domestic environment has become even more critical.“Joint ventures and strategic partnering is what will distinguish business models going forward and private sector financing and private equity will play a role.“There are no easy answers or cookie cutter solutions to the issue. The Bermuda Government, specifically the Ministries of Economy Trade and Industry, Business Development and Tourism and Ministry of Finance on an ongoing basis review and consider and discuss these issues with our stakeholders and are mindful of a number of options.“The appropriate policy options will be discussed in the near future. At a time when we need gamechangers there are no ‘sacred cows’.”Anchor Investment Management chief financial officer Nathan Kowalski said: “The 60/40 rule is definitely not helping the liquidity conditions.“Obviously opening up the market to foreign ownership will increase the ultimate investor base and potential level of total capital.”He noted average daily trading value on the BSX was approximately $204,000 per day last year based on the total value traded of $51 million.Therefore, an investors’ ability to exit a sizeable investment is limited, he said.For example, according to AIM, if you owned $1 million in BF&M, it would take you roughly 65 days to reduce the position to zero based on a daily average trading value of about $15,400 and assuming you were the only one selling.In times of stress this window is even narrower and in many cases unavailable unless a large discount is applied, Mr Kowalski said, adding, “The bid/ask spread on local shares make the total cost on trading much higher than more liquid securities.”LOM portfolio manager Bryan Dooley said local companies are clearly faced with the issue of having a limited number of buyers for their shares at any one time , which “will always keep a cap on what they can do”.“If the market can be opened up in way to foreign investment that would certainly be constructive in terms of providing more liquidity,” he said.
BSX Market Capitalisation (as of March 8, 2011)(Total market value of all of a company's outstanding shares)Butterfield Bank - $713.8 millionAscendant Group- $149.9 millionArgus Group Holdings - $82.4 millionKeyTech - $58.5 millionBF&M $48 millionBermuda Commercial Bank $42.8 millionOther - $87.6 million
Source: Anchor Investment Management