A CAPITAL APPROACH TO MARKETS
Many of the entities mentioned in the Malta Financial Services Advisory Council (MFSAC) national strategy for financial services had already started implementing the changes outlined in the action points – and the Malta Stock Exchange is no exception. Vanessa Macdonald caught up with Chairman Joe Portelli to find out more.
Picture: Joe Portelli, Chairman, Malta Stock Exchange
Back in 2016, the Malta Stock Exchange (MSE) had come out with its capital markets strategic plan. Since then, much work has already been done, driven in no small part by Chairman Joe Portelli's energy.
"In 2015, if you walked into our lovely building there was nothing to show that we were a Stock Exchange! We had no social media, no bell ringing ceremonies, no technology boards. Since then, we have doubled the number of listings and our operating income had gone up by 150%. Why is this? Because we have raised awareness!
"We only had two people attend our first bell-ringing, but we now have a few dozen and standing room only. We have a monthly and six-monthly newsletter, the Malta Stock Exchange Review magazine, and we boost financial literacy through our own Academy. All these things have raised our profile," he said.
The increase in listing is part of a noticeable global trend towards alternative financing by corporates. In the past, if a company needed to raise capital, it went to the bank.
"Today, companies are very interested in capital markets, and it helps knowing that they can go through our due diligence process in just a few months. The banks themselves are listed," he smiled.
Mr Portelli pointed out that the low interest rate environment also had an impact of whether a company went to a bank or to the capital markets. However, with interest rates now rising, what could happen?
"They might be more likely to use retained earnings to finance future projects. Let us see what the trends are... But we are optimistic as there are still companies coming to us, the latest being the Phoenicia," he added.
Going back to the MFSAC, Mr Portelli finds it reassuring that its own strategic plan aligns with that of the national one. Indeed, the MSE remains an active member of the MFSAC's Task Force for capital and financial markets, which includes the Malta Financial Services Authority, the Institute for Financial Service Practitioners and the Government.
"We support all the work being done by the MFSAC and those involved with it. And it is very positive to note that many of the things that are seen as important for Malta's financial services in the future are ones that we have already put into place, such as REITS, Exchange Traded Funds and Green Bonds..." Mr Portelli said, adding that these were in addition to the introduction of the Prospects platform for smaller companies.
Of course, the MSE's initiatives cannot gain traction in a vacuum. REITs, for example, were introduced in 2020 but might benefit from fiscal incentives, which may actually happen now with the backing of the Task Force, he said.
"We have built REITs but it has yet to take off. We built ETFs and have one listing. And we introduced Green Bonds and have one listing. We are doing what we can within our mandate. We want to build an efficient and cost-effective capital market structure and I think that we have been very successful with this. But it is up to the corporate entities to make it work. We are fortunate to have a very sophisticated market for the size of our economy; our capital markets are open and very active."
The statistics speak for themselves: the MSE currently has 110 companies listed, a considerable number when you consider that the island has a GDP of around €17 billion, while Ireland and Luxembourg – which have a combined GDP of €600 billion GDP – have around 85 listings between them.
The MSE is also looking ahead and one of the sectors it is studying is the blue market, which covers everything linked to the seas, from fishing to shipping.
"We are studying the idea of having fish futures – in the US they have salmon futures but perhaps here there would be more interest for tuna. Having said that, it is one thing to talk about potential developments but to really make them work they have to be demand-driven," he said.
One of the perennial questions hanging over the MSE is whether it needs an international shareholder to help it expand. It was at one point approached by a UK stock exchange and a US private equity fund but Mr Portelli has reservations about the need for a strategic partners and the value-added they could bring, starting with the fact that with a value of €35-40 million, the amount of interest would be limited, especially for entities with turnovers that run into billions of euro.
The first factor to take into consideration is why the Government – as the shareholder – would even want it to be privatised.
"As a government-owned entity, we are by far the most profitable and since 2015, we have paid tax and dividends amounting to €40 million to our shareholder..." he pointed out, adding that it had paid the Government €2 million a year in dividends alone – an amount set to increase to €2.25 million.
The only positive that Mr Portelli sees would be access to other business streams. However, he said, "you have to balance that against having a shareholder which puts Maltese interests – and the interests of all the MSE's stakeholders – first".
The other issue that the MSE takes seriously has been ESG and it has adopted high standards for itself, as well as promoting it in various contexts. It recently held a multi-day conference on Governance, Risk, Compliance and ESG.
"The whole idea is to promote Malta as a jurisdiction that takes ESG seriously," he said. "We have little leverage over ESG within listed companies, and while large international companies would need ESG ratings if they are seeking investment by large funds, here in Malta hardly any get rated.
"Having said that, I do think that the corporate space in Malta does take governance very seriously and does a pretty good job at ticking the boxes," he said.
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