The Malta Stock Ex­change’s po­tent po­ten­tial

Malta Independent - - BUSINESS & FINANCE -

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@pkf­ 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.

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