Q for frederic...DR stock market

mondongo

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Jan 1, 2002
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Frederic, according to today's Daily News, the DR could soon be set up to trade stocks. With short term commercial paper running at 17%, stocks would have a difficult time competing. my guess is that these companies would have to pay a susbstantial dividend, maybe even as high as the commercial paper. Since there is no history, these companies would have to lure investors with the pormise of increasing dividends (at least to keep up with the short term paper), which in turn would lead to massive volatility....hmm....does not sound like a pretty picture...

frederic, i would welcome your thoughts on this. Another somewhat related question: is there a reputable bond ratings agency that rates the quality of DR commercial paper? I'm assuming Moody's and SP dont have offices down there to do small DR commercial paper.

has there been any thought/legislation on how the brokers will be licensed?

thanks in advance
mondongo
 

frederic

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Jan 1, 2002
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mondongo said:
Frederic, according to today's Daily News, the DR could soon be set up to trade stocks. With short term commercial paper running at 17%, stocks would have a difficult time competing. my guess is that these companies would have to pay a susbstantial dividend, maybe even as high as the commercial paper. Since there is no history, these companies would have to lure investors with the pormise of increasing dividends (at least to keep up with the short term paper), which in turn would lead to massive volatility....hmm....does not sound like a pretty picture...

frederic, i would welcome your thoughts on this. Another somewhat related question: is there a reputable bond ratings agency that rates the quality of DR commercial paper? I'm assuming Moody's and SP dont have offices down there to do small DR commercial paper.

has there been any thought/legislation on how the brokers will be licensed?

thanks in advance
mondongo
Re your first question...the new rule announced is just the formalization of what already existed. Any company could sell shares, but they wanted to be able to do it backed by a law, which was passed previously, but it also established a regalmento that would be passed later, and that was what was implemented now. What this means is that now some companies that held that as an excuse for not entering the market, will not have that excuse anymore.

The problem was never the lack of a law or the lack of a reglamento. The real problem is the lack of will and disposition of almost all dominican companies to open themselves, through a more transparent market, to the scrutiny of the investors and specially the government.

For example, how can companies that have grown to five times their size during the last 10 years, without having profits declared (and taxed) become transparent? What will happen to that company if it went public?....it would have to show its real profits to lure the investors, but then that same transparency would reveal the real profits and would attract the attention of the "tax man", and would consequently have to pay taxes.

We have followed the European tradition of having companies issuing IOU's, which is what commercial paper is anyways. We have not followed the US tradition of having companies going public, and transparent, through IPO's. And my guess is that this trend will continue for some time, until our capitalization culture becomes more americanized; maybe after taxes are reduced and there is no large cost to be bared by those who become transparent.

Re your other question, you will be surprised to know how many companies have profits averaging 30% annually (YES...30% and even more !)...of course, but declaring losses every year, year after year, because they don't want to pay taxes and because they can get away with it.

The DR needs to lower susbtantially its taxes to corporations and capital accumulation processes and wealth in general , so as to lower the costs of becoming transparent and going public...if the Governments don't do it, companies, specially family owned companies will not have sound reasons to go public.
 

mondongo

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Jan 1, 2002
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frederic, thanks for the reply. how can corporations legally avoid paying taxes? Isnt there some reasonably accounting standard that can be enforced? Doesnt the DR have some kind of revenue agency that can audit these companies?


just wondering,
mondongo