The Malta Stock Exchange’s potent potential
Dr Mifsud has recently graduated in Law from the University of Malta and is currently reading a Master in Advocacy with the same. Her thesis focused on “The EU Directive on the Protection of Trade Secrets – A Critical Appraisal”. She can be contacted at mimifsud@pkfmalta.com or on +356 2149 3041
The constitutional document of the Malta Stock Exchange (MSE) was radically amended in 2002 and renamed as the Financial Markets Act. It was heavily amended further in 2007 to reflect the dispositions and requirements introduced by the MiFID and the Transparency Directive.
Malta’s accession to the European Union in 2004 and its adoption of the euro in 2008 propelled it into a flourishing finance centre, with a robust presence in the financial services field.
Cushioned by a sound reputation on the globe, the Malta Stock Exchange oils the wheels of capital financing through numerous equity and debt transactions, by virtue of which investors can mobilise their savings into productive investment. Furthermore, within the realm of a secure and well-regulated secondary market, the MSE also provides facilities through which listed securities can be subsequently traded, creating liquidity for the primary market and providing a continuous pricing of securities, granting investors a way through which they can ensure that the price-tag does indeed mirror the financial assets’ true value.
Despite Malta’s solid standing internationally, a paucity of listed securities characterises the Malta Stock Exchange. In fact, statistics comparing countries in relation to the number of listed companies on regulated markets show Malta tumble to the bottom, with a mere 37 listed companies on the MSE out of a total of 70,000 companies registered with the Maltese Registry of Companies. It is to be noted that none of the listed companies on the MSE are foreign, evidently reflecting that the more attractive attributes of foreign stock exchange platforms are being more successful at appealing to such businesses’ capital raising demands.
Such a meagre ranking appears to be incompatible with Malta’s impressive performance during the financial crisis, begging the question: in light of the stock exchange being an indicator of the economic situation in the country, are we reaping enough harvest from our positive economic standing? However, economic merit is not the sole determinant. An amalgamation of factors contribute to Malta’s lack of presence on the map when it comes to listed securities, which, one can say, boil down to cultural influences.
One of the chief reasons leading to such a modest listing on the stock exchange is the crosssection of the majority of Maltese enterprises being composed mainly of familyowned businesses. Indeed, it is for this reason that venture financing never took off in Malta, since a key element distinguishing this alternative form of capital raising from bank financing is the right of the entity supplying the funds to appoint a director on the company’s board. It goes without saying, therefore, that the inclusion of outsiders on the decision-making table jars with the family-oriented culture of many businesses in Malta and is hence not welcomed with open arms. Additionally, the heavy dependence on banks, internal financing and the unfeasibility of listing to smaller companies, which may be daunted by the requisite to have a fully-paid up share capital of at least one million euro, all play a role in steering local businesses away from the listing market.
On the flip side, enterprises seeking to raise capital for their business endeavours may elicit various gains besides the principal benefit of having a reliable source of varied capital for the going concern of the business at a relatively low cost. Indeed, serving as a form of extra advertising, the listing will amplify awareness of the firm’s product and services, as well as give the business a more prestigious position with shareholders, customers, suppliers, employees, as well as business partners. Besides enhancing the entity’s business profile, on the other end, the stock exchange gives investors the ease of mind of being able to convert their investment into cash whenever they desire.
As noted above, the key benefit of listing on a stock exchange is the fact that it is a wellspring of funds for capital-dearth companies, especially in circumstances where other avenues, such as bank financing and venture capital, may prove insufficient to support the business on-going strategy.
In a banking arena which is becoming increasingly risk averse, coupled with a domino pattern of termination of correspondent banking arrangements, resulting from reputational fears and rising compliance costs and penalties for breaches amid growing concerns of money laundering and terrorism financing, the MSE may be looking at a blessing in disguise. To this end, a more sophisticated and advanced stock exchange may be able to fill a growing lacuna in this sector by facilitating access to the financial market, which is a primary reason for domestic banks to enter into a correspondent relationship.
Indeed, the MSE should strike while the iron is still hot, especially in the light of latest news that the entire 15 million Euro bonds issued by Mediterranean Maritime Hub Finance plc to co-finance the rehabilitation project to transform the former Malta Shipbuilding in Grand Harbour into a marine, oil and gas facilities centre were gobbled in just two days, with applications exceeding the maximum amount that can be issued, evidencing a ravening appetite from the investors’ side. Such an announcement also illustrates a sense of readiness by the public to take risks since all bonds were unsecured, with the investors relying solely on the security yielded from the full faith and credit of the issuer and the potential envisaged in the grand project.
In view of this, MSE’s initiative introduced Prospects earlier this year, a novel capital markets platform targeted at small and medium-sized enterprises (SMEs) looking to raise between three and five million euro, is very commendable in this respect. SMEs are the backbone of the Maltese economy, accounting for 99 per cent of companies in Malta. It is therefore regrettable that, owing to the obstacles faced in attracting capital, most SMEs’ capacity to prosper are hindered, due to limited access to cost-effective capital through alternative sources, inducing them to depend on traditional bank finance, family funds and savings or costly private investors.
Prospects sets the ball rolling in inducing a paradigm shift in the manner local companies raise capital, allowing them to fuel growth, create employment and boost the economy. Annual listing costs for SMEs are drastically cut down since there is no requirement to publish a prospectus and the costs are dependent on the company’s market capitalisation. Furthermore, the listing company need not have a sponsor, but an MSE-approved corporate advisory will monitor proper compliance and corporate governance, transparency and the observation of accounting protocols.