During last week’s Budget speech Finance Minister Edward Scicluna announced that the Malta Stock Exchange (MSE) and the Ministry of Finance had established a committee with the aim of strengthening and further developing the local capital market. The minister revealed that this panel of experts had already initiated discussions on a roadmap which is being drawn up with particular reference to the upcoming EU regulations and directives as well as the creation of a new Capital Market Union by the European Commission.

The formulation of a strategic plan for the MSE is a welcome development. It comes at a very delicate stage for the local capital market. As I have documented in recent weeks, following the de-listings of both Crimsonwing and very shortly Island Hotels Group Holdings, only 20 companies now have their shares on the Official List of the MSE. Given recent announcements by various companies, unfortunately others may suffer the same fate, which would lead to a further downsizing of the equity market.

Given the foregoing and the fact that listing fees represent the major source of revenue for the MSE, a plan to increase the number of equity listings should be among the priorities in this roadmap.

The last public offering on the equity market was that of Tigné Mall in 2013 and, before that, Malita Investments in 2012. The addition of only two companies in over three years is far too little progress. The lack of new equity issuance may also be due to some regulations which may be too rigid for the structure of certain local companies, and these ought to be revisited to instigate more companies to go public.

To ensure a higher degree of success in growing the local capital market, the privatisation of the MSE is fundamental

In the 2016 Budget speech the Minister of Finance also mentioned that over the past two years the MSE has been working on the setting up of a new regulated platform, whereby small and medium-sized enterprises (SMEs) can have more efficient access to finance when tapping the local market. This initiative, branded ‘Prospects’, is also aimed at assisting in the necessary succession planning of such companies. However, no target date was mentioned by the Finance Minister on the planned launch of this junior market. In my view, its success is questionable if no tax incentives are offered in connection with listings on such a market.

Another important revenue source for the MSE is the fee earned on the value of trades that take place across the equity market, the corporate bond market as well as that in dealings across the various Malta Government Stocks. This is naturally directly linked to the number of listings across the various asset classes.

Although equity market trading activity increased considerably during the first nine months of 2015 and the best-ever Q3 was witnessed since 2006, this volume may not be sustainable if the number of companies listed on the MSE decrease. Meanwhile, there was a higher degree of success in growing the corporate bond market, although given the huge liquidity across the local financial system, many more companies can easily utilise this alternative source of funding.

In my view, in order to ensure a higher degree of success in growing the local capital market, the privatisation of the MSE, through the introduction of a strategic partner and the participation of market participants (MSE members), is fundamental. This should feature high on the ‘to-do list’ of the panel of experts devising the roadmap.

Privatising the MSE was first mentioned almost 10 years ago when the then-chairman of the MSE, Joseph Zammit Tabona, explained that the corporate restructuring exercise taking place in 2006 was also necessary to enable the privatisation of the MSE through the possible involvement of a strategic partner. In November 2008 the Finance Minister of the time announced that the government was seeking a strategic partner for the MSE. A few months later it was reported that the MSE had commissioned Ernst & Young and a study was concluded “aimed at seeking new ways of attracting more companies to listing, as well as to outline what options are available for closer relations with strategic partners”.

Unfortunately, the global financial crisis disrupted the plans, but once markets started to recover and merger and acquisition (M&A) activity was rife among global bourses in 2011, the government of the time seemingly failed to reactivate this intitiative.

A strategic partner could spearhead the introduction of initiatives such as ‘market-making’ and ‘short-selling’

It is becoming increasingly accepted that nowadays governments should concentrate on formulating policy and regulation, relinquishing day-to-day operational activities in key entities across most sectors. It has been very evident, both locally and internationally, that the private sector is much more efficient than the public sector at managing companies and achieving financial and strategic objectives. This should be no different for the MSE.

The present government introduced a strategic partner for Enemalta and is now acknowledging that the future of AirMalta is also dependent on a strong strategic partner to compete more effect-ively and ensure long-term financial stability. Likewise, an international strategic partner of repute should be viewed as the long-term solution for the Malta Stock Exchange.

One way of increasing the number of equity and bond listings for the benefit of savers and investors is by attracting small international companies to consider the use of the local capital market since their size may be a deterrent for a listing on a larger international bourse. While this was briefly mentioned in the past by the MSE itself, no tangible results have been achieved to date. The introduction of an international strategic partner can be instrumental in attracting foreign companies to the local bourse.

Moreover, the experience of a renowned player can also be vital in proposing measures to the local authorities to help many of the older-established Maltese companies to consider an equity listing as a means of resolving delicate succession planning. A strategic partner could also spearhead the introduction of other initiatives also mentioned in the past by the MSE, such as ‘market-making’ and ‘short-selling’ which have yet to come to fruition.

Hopefully, the committee entrusted with the drawing up of the roadmap will consider these ideas alongside others coming from an appropriate consultation period with market participants. This would ensure that all stakeholders become involved in the important matters that need to be implemented for a more successful local capital market.

Rizzo, Farrugia & Co. (Stockbrokers) Ltd (RFC) is a member of the Malta Stock Exchange and licensed by the MFSA. This report has been prepared in accordance with legal requirements. It is based on public information only and is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. RFC, its directors, the author of this report, other employees or RFC on behalf of its clients have holdings in the securities herein mentioned and may at any time make purchases and/or sales in them as principal or agent, and may also have other business relationships with the company/s. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Neither RFC nor any of its directors or employees accept any liability for any loss or damage arising out of the use of all or any part thereof and no representation or warranty is provided in respect of the reliability of the information contained in this report.

© 2015 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved.

Sign up to our free newsletters

Get the best updates straight to your inbox:
Please select at least one mailing list.

You can unsubscribe at any time by clicking the link in the footer of our emails. We use Mailchimp as our marketing platform. By subscribing, you acknowledge that your information will be transferred to Mailchimp for processing.