Business
South Pacific Stock Exchange
It may be small, but it’s exciting curiosity
With just four listed public companies, the Suva Stock Exchange, as it was once known, excited steady international curiosity as the world’s smallest bourse.
Last April, now renamed as the South Pacific Stock Exchange (SPSE), it had its market capitalisation more than doubled to F$719.3 million (US$ 309.29 million) with the listing of Amalgamated Telecom Holdings Ltd (ATH), owner of the Fiji telecommunications monopoly.
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ATH, with a market capitalisation of F$447.4 million (US$102.38 million), became the 15th public company listed.
The SPSE began as a small office at the Fiji Development Bank, but was preceded classically by an informal share trading board chalked up in a nearby steakhouse.
For a couple of decades it was minuscule with an annual share transfer totalling a few tens of thousands.
A shake-up began in the mid 1990s and a Capital Markets Development Authority began operating in January 1998.
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SPSE’s listing of four public companies was dwarfed until three years ago by the nine listings of the Barbados exchange.
Last year, it had an annual record of four new listings.
Chairman Ken Clemens, a founder of the Papua New Guinea stock exchange, in welcoming ATH to the board said: “We’re very happy because it relegates Barbados to the bottom of the second division.”
With the growth of the exchange has emerged a small clutch of sharebrokers, unit trusts and investment advisory services.
In August, Fiji’s finance minister Ratu Jone Kubuabola officially launched the SPSE central registry. This maintains share registers for listed and unlisted companies and offers such other services as the receiving, validating and processing of share transfers, dividend distribution, registration of new shareholders and handling IPOs and share splits.
But compared with the great bourses of New York, London, Tokyo and Hong Kong trading, trades at the SPSE, conducted for 30 to 45 minutes three times a week, is still enough only to excite the idle curiosity of heavy financial news services.
Last year, it had 694 trades for a total of 2.6 million shares worth F$4.4 million.
Most Fiji investors are wary of shares and companies that publicly offer them. In the 1960s and 70s several public companies went bust and small investors were hurt.
Most Fiji businesses are private companies or partnerships and are inclined to preserve such status.
For an insight into Fiji’s embryo financial services business, it is worth talking to Jack Lowenstein, an Australian investment banker who began as a financial journalist.
With John Courtney, a New Zealand-based investment banker and stockbroker, he established Kontiki Capital in Fiji in 1998 and later associated stockbroking, fund management and financial advisory subsidiaries.
Kontiki also operates in Samoa and other Pacific Islands countries. But Fiji, for Lowenstein, is the great challenge and opportunity.
“John and I have been coming to Fiji separately since 1988 and we saw a lot of things we thought were very promising,” he says. “The first was that there was clearly a commercial culture in Fiji, a critical mass, a relatively good legal system and a good financial accounting infrastructure; and its government was clearly no worse than a lot of similarly emerging economies.
“We take the view that despite the political events of 1987 and 2000, the Fiji economy can grow at 10 percent annually or more for almost an indefinite period because it would naturally start to catch up with Australia and New Zealand. The question is: why hasn’t it?
“The human resource of Fiji is outstanding. That is the most valuable asset. People here tend to focus on all the wrong things; on land. Land has held Fiji back. The thing that is going to make it is human resources.
“Why hasn’t it performed at the growth rates we are talking about? The answer is simple. Politics.”
Loweinstein’s creed is to be blunt: “We retain our optimism that sooner or later people will wake up and before the place becomes Africanised they will start to address the many opportunities out there for them.
“The danger that Fiji could become a different branch of Africa is still there. But also there is still a large number of people who have dedicated their lives to making the place work and keeping it honest in the face of quite considerable odds.
“Fiji’s other great attraction is its stock exchange, even if it is still a rather small one,” he says.
“One of the problems that has also held back growth has been the ineffective application of the country’s savings to productive investment.
“We see Fiji as a place of vast opportunity and assets, including financial assets, but with a very ineffective process for letting the assets available to mesh with opportunities. As investment bankers, John and I hope we can assist in that process.”
When the Kontiki crowd moved in, recalls Lowenstein, “people could see we weren’t carpetbaggers. I always said we may be, but our carpet bags were empty. People thought we were another bunch of naive foreigners who thought that in the land of the blind, the one-eyed might be king. I have to say in fairness they might be right. We didn’t think we were going to achieve success overnight, but it has taken longer than we thought. Those coups haven’t helped.
“The fact is that only time heals some things,” says Lowenstein.
“Fiji has got to restore its brand, and if you think the people of Fiji have laughed at us you can think of how I am laughed at in Australia. I am laughed at because I have a reasonably good business reputation in Australia and it is considered there that by and large I am wasting my time.”
Kontiki draws this picture of business in Fiji: “It has been restrained by regulation and lack of opportunity. Successful businesses are undergeared so as a result they have free equity or even cash in their balance sheets doing nothing.
“Ordinary individuals are often surprisingly undergeared. There is a lot of capital. Fiji’s problem is not shortage of capital.
“We feel we have helped make the stock market a more effective place,” Loweinstein says.
“The number of companies listed since we opened our doors has gone from nine to 15, and we have had a lead role in five of those and partial role in others.
“We have published research on most listed companies so that people can analyse them. We have succeeded in persuading a lot of financial institutions which didn’t have any equity or far too little to take the plunge and buy equity. When we first arrived the stock market had one broker and now has three. We don’t think the market will achieve liquidity here of any great degree for many years.
“The turnover of the stock market is going to be relatively low. One thing that has happened since we’ve been here is that the bid offer spread between buyers and sellers in shares on the stock market has narrowed and bids and offers move around more.
“Price discovery has improved. People can now price their equities; we can make a market in most shares by using our own capital.
“The main reason why liquidity is increasing is because for the most part there are no sellers of shares; not of substantial holders of shares. The most sought after shares remain Carlton Brewery, South Pacific Distilleries and Fiji TV, and people very rarely want to sell their shares for very good reasons.”
Lowenstein says that another reason for lean liquidity in the stock market is that there isn’t enough different shares.
“It’s only when you have choices that people are going to switch. A bad liquidity market is one in which nobody wants to buy,” he says.
“What we are working on constantly is talking to owners of businesses in the country about why they should list their companies on the stock market.”
Ownership of productive assets in Fiji is highly concentrated in the Indian community and foreign-owned businesses.
“A spread of ownership is going to be good for the country,” he says.
“Being listed means everyone can see your figures, they can see you have paid your tax. How can you view a company if it is not listed on the stock market?”
What are Kontiki’s thoughts about the future of Fiji’s share investment market? “We think it will probably go up by five to 10 companies a year for five to 10 years, with good years and bad years for good companies and bad companies,” Lowenstein says.
