Interview : Lazhar Sahbani
To what extent can listings of private companies restore trust in the capital markets?
LAZHAR SAHBANI: Considering the current market’s status, with only five registered companies, the involvement of large private companies in the Algiers Stock Exchange (ASE) could restore trust in the capital market, enhancing the attractiveness of initial public offerings (IPOs) from smaller entities. In such a scenario, that listing will improve the governance model of private entities by drawing up a transition plan to ensure that the next generation will succeed the current management and protect their wealth.
Companies that are listed are required to publish their financial statements on a regular basis, consequentially improving the corporate governance of these companies and significantly raising the level of transparency within the business environment.
What are some of the challenges that small and medium-sized enterprises (SMEs) face to being able to access capital markets?
SAHBANI: SMEs face many practical and economic environmental challenges. One of the main factors preventing the market evolution is strong inflation, which negatively influences the performance of listed companies and their financial statements, showing both realised and unrealised foreign exchange gains and losses. Additionally, while legislative instability increases, there remains an uncertainty and lack of trust in the financial market.
In addition to these challenges, there are some barriers that are directly linked to the governance models of SMEs, where there is a strong intervention from the founder to be able to limit access to the capital of their family-owned entities. This restrictive investment method systematically excludes private equity investment possibilities, depriving companies from the skills and management tools which could increase the companies’ potential growth and productivity.
The government keeps a close eye on the activities of large private groups through several measures, including exercising a pre-emptive right upon any operation linked to share deals, which could be considered as a major constraint to the company’s listing.
How can private equity funds take advantage of IPO operations while stimulating capital markets?
SAHBANI: Private equity funds should focus at first on a communication plan to describe their activities, the financing tools they offer, and the role of private equity for improving productivity and managing firms.
In practice, private equity players, together with ASE representatives, should set up marketing tools dedicated to explaining their activities around think tank sessions to demonstrate the feasibility of IPO operations and highlight their many advantages.
Furthermore, involving companies’ leaders in a larger discussion on the potential growth of the stock exchanges and the synergies with private equity investment should illustrate the real practical problems their businesses face generally and in relation to IPO projects specifically. This will lead to a joint-action plan that details operational solutions to realise IPO projects and help companies join the rank of listed companies, as well as allowing private equity players to diversify their portfolios for a dynamic capital market.
The current legal framework offers numerous incentives for private equity companies investing in Algeria. However, these incentives remain limited to private equity business and have not been extended to the companies planning to make an IPO.
Some amendments should be introduced to the current regulations. Repealing the pre-emptive right on IPO operations should be the first priority. The introduction of a more attractive legal and tax framework for companies and investors could start with exemptions from corporate income tax, registration duties and other taxes that are linked to share deals.
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