Transcript Development of capital markets forum

19th ANNUAL RESEARCH WORKSHOP
DSE’s EGM AS A VEHICLE FOR
CREATING CAPITAL FORMATION
AND INCLUSIVE DEVELOPMENT
By
Marwa Moremi
1
Ledger Plaza Bahari Beach Hotel
Dar es Salaam, Tanzania
April 09-10, 2014
The Agenda
 The Dar es Salaam Stock Exchange
 Role of Stock Exchange to the Economy
 Overview of EGM & SMEs in Tanzania
 EGM Experience & Prospects
 Experience in Other Markets
 Challenges & Policy Options for a Successful EGM
& SMEs
 Conclusion
2
Role of DSE to the Economy
• Raising capital for businesses (also cost efficient & effective
future capital raising)
• Facilitates privatization of SOE, development of capital markets
and economic transformation
• Rational allocation of funds, through mobilizing savings for
productive investments
• Improves corporate governance, transparency, disclosure,
management standards & efficiencies
• Creating investment opportunities for small investors
• Government capital raising for development projects & for
monetary policies objectives
• Barometer of the economy
• All these translates into job creation, more government revenues,
better returns to investors & sustainability of businesses &
economy.
3
DSE Current Status
• DSE started operations in 1998
• 18 listed companies (6 cross listed); 7 through privatization
• Domestic market capitalization (TZS 6.2 trillion, total market
capitalization TZS17.5 trillion)
• Domestic Market cap/GDP (measures depth of the market
is ~12%)
• All Government bonds are listed: currently worth TZS 3.3
trillion
• 4 outstanding corporate bonds worth TZS 47 billion
• Investor base ~ 200,000 investors
4
Why & Who should use the DSE?
 The purpose of listing is very often, but not always to raise capital
 Management involved in a buy-out of a company
 Companies that are growing rapidly and feel constrained by
inadequate funding can issue shares to provide funds for
expansion
 Companies that wish to provide employees with a stock in
ownership
 Shareholders of companies who wish to realise some of their
investments in the company
 Takeovers and mergers can be facilitated by a listing due to the
transparency of a listed company’s accounts as well as the
continuous value placed on the shares by the market
 Parastatals or government controlled corporations may make use
of the stock exchange to broaden their shareholder base
5
Basic Listing Requirements
(MIM)
 Share capital amounting to a minimum of Tshs. 500 million
 A minimum of 1 million shares must be in issue and 25%
public shareholding
 A profitable trading record for two years
 An acceptable record in its field of business and adequate
management to maintain business
 Other criteria such as the vulnerability of a company to
specific factors or events will be taken into consideration
 The company should have qualified auditor’s report for the
preceding 3 years
6
Advantages of Listing into DSE
FINANCING
 to increase the equity base of a company, thus allowing for future expansions
and growth without the interest burden associated with borrowed funds
 A listing creates the possibility of using the company’s shares to finance
acquisitions, as sellers are more likely to accept marketable listed shares in
exchange for their investments
 A listing may make it easier to obtain other forms as finance, such as bank loans
 A listing provides a basis for the valuation of a company’s shares
ORIGINAL SHAREHOLDERS
 All shareholders will benefit from the establishment of a market for their shares,
leading to a potentially higher demand and higher prices than would have been
the case in a limited market
 A listing enables original shareholders to realize part or all their holdings.
 Original shareholders may benefit from the increased liquidity of their investment
brought about by a listing
7
Advantages of Listing in DSE
EMPLOYEES
 The implementation of share incentive schemes may result in a significant
improvement of the motivation of both staff and management. A listing would
make such a scheme more attractive to employees, and facilitate its operation.
 The public attention focused on the company by the media may boost the
morale of employees, as they share in the enhanced status of the company.
PUBLIC IMAGE
 The enhanced status brought about by a listing may favourably affect relations
with banks, suppliers, customers and the Government.
 Stock exchange bulletins and reports in the financial press result in the greater
publicity for the company and its product.
8
Methods of Listing Securities
on the Exchange
 An offer for sale of existing or issued securities
 Initial Public Offering
 Introduction of Securities already listed in the Exchange
outside Tanzania
 Any other method approved by the Authority
 Additional new listing of securities: [rights issue,
capitalization (or bonus issue), script dividends, or any other
method approved by the Authority)
9
Market Segments at DSE
 Main Investment Market Segment
 Enterprise Growth Market Segment
 Fixed Income Securities Market Segment
 The issuer may seek to transfer from one segment to
another upon meeting eligibility criteria and disclosure
requirements for the segment to which it wishes to transfer
to and shall be subject to the Authority’s approval on the
recommendation of the Exchange
10
Enterprise Growth Market
 FSDT Baseline survey of 2013 indicates that there are more
than 3 million SMEs employing more than 5 million people leading sectors are: trade (55%), accommodation & food
services (26%), manufacturing (14%)
 MSMEs contribution to GDP is 27%
 Key sources of capital for SMEs are: household savings,
bank facilities, MFIs loans, and in a relatively small scale PE
& VC funds and capital markets (EGM)
11
Enterprise Growth Market-2
 Genesis: 2006 Study by CMSA
 Indicated the existing Listing Rules & Regulation are not
inclusive (excludes and not feasible for SMEs)
 EGM Listing Rules are less stringent
 Focus on SMEs with: capital base of TZS 200 million; 20%
of public float; minimum shareholders of 100; can be a start
up (with a feasibility and business plan) i.e. operability and
profitability not key; good record keeping & governance
structures
 Inaugurated in November 2013 – has 1 listed and 2 standing
applications
12
EGM Experience & Prospects
 Have one listing – capital raised TZS 4.5 billion
 2 applications: for TZS 2.75 billion and TZS 3.2 billion
 Good source for long term, relatively less costly & sustainable
capital
 Has the potential of financing value chain activities in the
commercial agriculture, agro processing light manufacturing
industries
 Have the potential for job and wealth creation in both urban &
rural areas
 Can strategically be used in transforming the social economic
dynamics and hence reduce influx of rural to urban migration
 Will facilitate transforming sources of long term development
financing which has traditionally been aid, grant, loans and FDIs
13
EGM Experience, other
Countries
 Alternative, small cap market segments is not unique for
Tanzania only
 Well established capital markets have used this approach to
grow their mid-sized companies i.e: London’s AIMs: >3,000
companies, NYSE’s Altenext, Japan’s (Market for Highgrowth & Emerging Stocks – MOTHERS: 192 companies),
Malaysia’s ACE Market: 109 companies, Hong Kong GEMs
market: 267 companies, Italy’s AIM: 28 companies, Brazil’s
Nova Mercado
 Other African countries with similar model & experience are:
South Africa’s Altx: 80 companies, Mauritius’s DEM: 48
companies, Nigeria’s ASeM: 9 companies, Kenya’s GEMs: 1
company, Egypt’s NILEX, Ghana’s GAX
14
EGM Experience, Why
established?
 SMEs’ contribution
development
in
job
creation
and
economic
 According to research by ACCA (2007-09); SMEs
contribution to employment in U.K is 59% (& informal sector
contribution to GDP is 11%), in Japan 70% (10%), Malaysia
56% (33%), Hong Kong 48% (19%), Italy 81% (22%), USA
58% (8%)
 South Africa --%, Mauritius 45% (24%), Nigeria 75% (63%),
Kenya 28% (39%), Egypt --%, Ghana 16% (43%)
15
EGM Experience, Tanzania?
 Lack of sophistication, education and awareness
 SMEs’ not willing to share ownership, even in exchange for
less costly, efficient & better priced capital and also fiscal
(tax) incentives
 SMEs’ not willing for more disclosures, transparency and
continuous listing obligations i.e. good governance
 SMEs’ opts private funding (mostly borrowed funds) to public
funding of their businesses
 Lack of implementation of policies and legislative actions
aimed at inclusive economic ownership & development i.e.
privatization & EPOC & Mining Acts of 2010
 Private sector skeptical due to lack of leadership from the
Government
16
Way forward & Conclusion
 Public education and awareness creation through media,
seminars & workshops to focus groups
 Engage policy makers and the government in efforts to
capital market one of the key focus for economic growth i.e.
prefer, reward and encourage transparency, encourage
privatization through the stock exchange
 Private sector be encouraged and motivated to transform
from small local entities into regional corporate entities
through taping sizable and sustainable capital from the
public while practicing good corporate governance
17