Morocco: Attracting new listings
Working to increase activity on the Casablanca Stock Exchange (CSE), Morocco is aiming to boost liquidity on the national market and establish Casablanca as a regional financial hub for North and West Africa. Although growth has slowed due to continued economic instability in Europe and elsewhere, the CSE has seen a steadier performance than other regional bourses, and new companies are considering initial public offerings (IPOs).
The number of IPOs is beginning to pick up after a lull during the worst of the global economic crisis. The market hit a high point in 2006 and 2007 when each year saw 10 new listings, before dropping to five in 2008 and zero in 2009 as companies largely adopted a “wait and see” stance. Two new listings in 2010 and three in 2011, including STROC Industrie, the metalwork and façade manufacturer JetAlu Maroc, and the electronic payment firm Société Maghrébine de Monétique, have brought vitality and liquidity back to the bourse.
2012 started off well, with the January IPO of Afric Industries, a manufacturer of abrasives, tape and aluminium joinery. The company issued 38% of its capital, or 110,770 shares, at Dh240 (€22) per share. Demand for the company’s stock was over five times oversubscribed, with 41.9% of stocks going to individuals and the remaining 58.1% going to Moroccan corporations and institutions, according to the CSE.
The private equity firm Fipar Holding, the financial affiliate of the state-owned pension fund Caisse de Dépôt et de Gestion (CDG), also announced in January that it is considering a Dh2bn (€181m) IPO on the Casablanca exchange this year. The issue is expected in the third quarter, but no specific plans have yet been confirmed. If it moves forward, the Fipar Holding issue would be the largest new entry since 2008 and would go a long way toward increasing market liquidity.
As a result, the overall tone for the rest of the year is positive, but financial authorities are also looking to encourage additional listings to stimulate market activity in the near-term. The Morocco All-Share Index (MASI), a value-weighted index made up of all 75 listed companies, climbed 21.2% over the course of 2010, but dropped 10.3% by the end of the fiscal year in October 2011, due in part to decreased economic activity in Europe and the impact of the Arab Spring.
Market capitalisation also dropped, to Dh527bn (€47.8bn) by the end of the 2011 fiscal year, the fifth largest amount among the 16 Arab bourses tracked by the Arab Monetary Fund. Compared to a drop of 14% on the Dubai Financial Market General Index and 38% on the Egyptian Stock Exchange, however, the CSE fared better than many of its neighbours.
CSE’s CEO, Karim Hajji, told OBG this year that the CSE “aims to promote IPOs as an alternative means of financing for companies”. Hajji explained that Morocco’s banking system alone will not be able to generate the investment funds necessary to fuel economic growth. Considering that infrastructure financing alone requires approximately $20bn per year, capital markets could be a key area for raising funds.
The small number of new IPOs every year is one of the primary challenges facing the development of the capital markets. What is more, “there is a need to bring bigger companies to the exchange, rather than small ones, as has been the case over the past five years,” Youssef Benkirane, the president of the Association Professionnelle des Sociétés de Bourse (Brokerage Firms Association), told OBG.
In addition to a more hesitant economic climate, CSE officials contend that they must also address hesitation among many small and medium-sized enterprises (SMEs) over a perceived loss of control following an IPO. The stock exchange authorities contacted nearly 750 companies in 2011 to promote IPOs, particularly among SMEs.
Financial authorities are also multiplying incentives for companies to list on the exchange. The CSE subsidises up to Dh500,000 (€45,300) of expenses related to IPOs, including legal and financial advice. The government offers listing firms a 50% rebate on the 30% corporate tax rate during the three accounting periods immediately following an IPO when new shares are sold, although the 50% break may be revised down when the measure comes to its expiration date at the end of this year.
With new financial incentives for listing, CSE managers are confident that the number of IPOs will continue to expand. Hajji has indicated that by 2015, the bourse hopes to double the number of listed companies to 150, quadruple the number of investors, and establish Casablanca as a financial hub for North and West Africa. This is an ambitious goal in the current global economic climate, but perhaps the most effective means of improving liquidity on the national market.