CSE listings as a bridge to tap institutional funds

With funding from banks dried up or next to impossible as banks in Cyprus and around the globe cut lending and investments in risky assets to boost capital ratios, entrepreneurs and start-ups in need of funding for promising ideas have to find alternative funding solutions.

Entrepreneurs and start-ups who wish to launch promising new ventures, whether it involves investing in distressed assets to developing a new mobile application, can use a successful listing on the Cyprus Stock Exchange as a bridge to secure funding from institutional investors.

Most entrepreneurs and start-ups start their fund raising exercise by tapping into personal savings, approach family and friends, but there is a limit to how much they can raise from such sources.

The best results may be obtained by approaching institutional investors – pension funds, mutual funds, UCITS, Alternative Investment Funds (AIFs), regulated funds, insurance funds and others who have huge resources and the ability to invest or allocate funds for worthy projects.

Since most such funds by their own charter are prohibited to invest in private companies, the bridge to closing the funding gap is for entrepreneurs and start-ups to list their financial instruments on the CSE’s Emerging Companies Market (ECM/CSE) under simplified listing rules and allow such funds to invest in their financial instruments and in turn for the money to be invested in the promising projects.

EMERGING COMPANIES MARKET

The ECM/CSE advantage is that is the MTF Market of the CSE. It’s key it allows start-ups with no pre-history to secure a listing of their shares or bonds provided they submit a detailed business plan and 3-year financial forecast.

Similar to any MTF operating in the EU28, issuers do not need to submit a prospectus to list on the ECM/CSE since listing is done via an Admission Document prepared by the authorised Nominated Advisors that the issuer needs to maintain. There is also no requirement for the issuer to provide liquidity or meet minimum market capitalisation rules.

Eurivex, a regulated Cyprus investment firm, is an authorized Nominated Advisor (Nomad) to help facilitate the listing of local and foreign companies on the ECM/CSE.

Listing fees are very reasonable and on-going requirements minimal while the whole listing takes one month to complete.

THIRD MARKET OF THE VIENNA STOCK EXCHANGE

The Third Market of the Vienna Stock Exchange is the MTF Market of Austria where Eurivex is very active for listing of corporate bonds, utilising Austria’s competitive advantage of using the German Xetra trading system. Through the Austrian custodian bank, the OeKB, there is a possibility for direct settlement with Clearstream, Euroclear and even the NSD, the Russian CSD.

LACK OF LIQUIDITY

One of the key shortcomings of the MTF Markets, whereby the issuer is under no obligation to provide liquidity, is the lack of traded volumes on the financial instruments (shares, bonds or funds) after their listing.

Institutional investors are fully aware of the scarce liquidity conditions prevailing on the MTF Markets which is why they would not invest more than 10% of their assets in such markets. But since such institutional investors manage huge portfolios, even a tiny fraction of their investable assets would be huge for a private venture.

FLEXIBLE AND COST EFFECTIVE

For entrepreneurs and start-ups that can attract the attention of institutional funds and their managers, the listing of shares or corporate bonds offering a high yield is probably the fastest and cheapest way to securing all or a major part of the funding requirement for their projects.

The fact that the listing process can be completed in the case of a share issue in less than a month, while a corporate bond listing can be completed in less than two weeks and through simplified listing procedures and on very reasonable costs, means the stock exchange bridge is one of the most effective ways to alternative fund raisings.