Algeria: Boosting the bourse
Early results from a capital markets reform programme initiated in May 2011 have been promising, and Algeria is now looking to increase the number of initial public offerings (IPOs) on the Bourse d’Alger, Algeria’s stock exchange.
With the sixth-largest reserves of gas in the world, much of which remains unexploited, the country already supplies up to 30% of Europe’s natural gas needs. Algeria’s economy also emerged relatively unscathed from the 2008 global financial downturn and the regional instability of 2011, achieving an estimated 2.5% GDP growth last year, according to the International Monetary Fund. The country has the highest GDP per capita ($4495) among its North African neighbours, World Bank statistics show.
Thus, policymakers in Algiers are mindful that with a wealth of natural resources at their disposal and growing foreign interest in the country, a more active stock exchange would likely boost economic growth, particularly as Algeria looks to unlock new sources of capital for the country’s relatively small private sector, in addition to bringing in new funds for the larger state-owned enterprises.
“We have identified areas of the industrial sector from where we plan to float public firms on the bourse as joint stock companies,” said Nouredine Smail, the president of the Bourse Supervisory Commission (Commission d’Organisation et de Surveillance des Operations de Bourse, COSOB) when speaking with local media in mid-December.
Smail was delivering the initial conclusions of a capital markets reform programme, a $5.1m scheme aimed at revitalising the bourse with help from the UN Development Programme (UNDP). The 14-month project is part of a government strategy led by the Ministry of Finance to diversify the economy away from an overreliance on hydrocarbons, as well as make a concerted effort to increase competition among both public and private sector firms. Ultimately, Algiers wants to bring the bourse up to international standards.
The capital markets reform panel, made up of government officials and international advisors, has established four recommendations to do this. The first option calls for IPOs of shares in some of the large state-run industrial firms on the exchange, with a percentage of the shares to be retained by the state directly or through an investment vehicle.
A second option under consideration is to foster the creation of specific strategic partners for the state, whereby the state will hold 50-60% of the shares in the new firms and between 20% and 30% of the shares will be made available to the public in an IPO.
A third recommendation of the capital markets reform panel is to set out growth projects for specific sectors and allow private firms wanting to list on the bourse to boost their capital through the exchange ahead of such plans. Finally, COSOB and the panel recommend that stakes in banks and financial institutions should also be made available to foreign and public investors under the supervision of the Money & Credit Council (Conseil de la Monnaie et du Credit ).
Foreign investors are already limited to a 49% stake in Algerian private firms, with 51% retained by the government. “The 51%/49% rule is already a reality,” said Smail. “What we want to do is to offer the 51% stake to the public via the bourse, applying this common international practice to Algeria.” Similar local content rules for ownership are in place elsewhere in the Middle East and North Africa region.
It is hoped that 2012 will see more IPOs offered to Algerian nationals and foreign investors in an effort to boost the equity capital markets on the bourse. Many local private firms and investors consider this long overdue. Through its reform programme, the government is already trying to coax more private firms to consider a listing by offering incentives, such as a reduction in transaction fees.
The government is also looking at its right of first refusal on Algerian firms selling stakes in their companies to foreign investors. Currently, any shareholdings offered to foreign firms must be first sanctioned by the state, which can lead to some confusion, as evidenced by the lengthy negotiations over Djezzy, the country’s largest mobile operator. Djezzy, a unit of Orascom Telecom, is currently being valued for a sale to the Algerian government, following a lengthy discussion over the scope of the state’s right of first refusal. Making this process more efficient and speedy is also being considered by the capital markets reform panel.
The bourse’s market capitalisation remains extremely modest by international standards. The vast majority, around 98% or so, of activity is focused on the debt market, primarily corporate bonds for public enterprises. Since insurance firm Alliance Assurances listed on the bourse in November 2010, market capitalisation rose by 62% from AD7.7bn (€77.64m) to AD12.5bn (€126m) in early January 2012. By the middle of the month, market capitalisation stood at AD14.8bn (€152m), according to the Bourse d’Alger website.
Still relatively nascent, at 11 years old, the bourse does not yet reflect the range of economic activity in the country. Alliance was the first Algerian private firm to list on the bourse, and the other four public firms on the exchange are state energy giant Sonelgaz, pharmaceutical group Saidal, real estate firm Spa Dahli and tourist company L’Hotel El Aurassi d’Alger.
Aurassi and Saidal have been the only traded stocks since 2000. The corporate bond market remains the centre of activity, mainly due to debt instruments offering higher earnings than savings accounts, as their interest rates are in the range of 5% to 6%, compared to 1.5% to 3%. In 2009 two licences for notes were issued for Sonelgaz and ETRHB-Haddad, a construction company.
As the recommendations of the capital markets reform project take shape and lead to improved regulations, the Bourse d’Alger may see several new IPOs of industrial firms over the course of the year. This will indeed be a boost to both domestic and potential foreign investors.