Tunisia: IPO boost for capital markets
Despite continued political uncertainty, the performance of the Bourse of Tunisia (Bourse des Valeurs Mobilières de Tunis, BVMT) in the first two months of the year indicates that 2013 could yet see a significant rise in the markets. The February introduction of the agro-industrial firm Land’Or onto the Alternative Market,, which is geared toward small and medium-sized enterprises (SMEs), attracted considerable investor interest and sets a positive tone for the coming months.
Market activity slowed over the past two years as the January 2011 political revolution and the ensuing transition have created an environment of economic uncertainty. While small, the BVMT has traditionally been a stable market, and it managed to withstand the initial effects of the global economic downturn in 2008-09. In fact, four new introductions in 2010 raised market capitalisation to a record high of $10.6bn.
However, the market was hard hit by the turmoil of 2011. Capitalisation fell by 5.8% year-on-year to reach $10.05bn, and the average daily trade volume fell nearly 40% from $7.4m per day to $4.5m. The TUNINDEX, which measures all listed values, dropped by 7.7% in 2011 after climbing by 19% in 2010. The downward trend was partly mitigated in 2012, but the TUNINDEX dropped by a further 3% and market capitalisation fell further to $9.19bn by the end of the year. This is still a relatively small decrease, however, given the difficulties in the banking sector, which represents the bulk of value on the market.
Activity in 2013 bodes well for the advancement of the BVMT, even though Tunisia’s market has yet to deepen its offering by introducing derivatives, futures and other such products. In the short term, public and private sector leaders aim to increase companies’ reliance on the stock market as a source of capital, thereby relieving pressure from the cash-strapped banking sector. Companies have been slow to move toward public offerings. The four listings in 2010 were followed by just one in 2011 and two in 2012, bringing the total to 59 listed firms.
However, upwards of 10 companies are expected to issue initial public offerings (IPOs) on both the main and alternative markets of the BVMT in 2013 – a record number. Land’Or became the 60th listed company in February, with demand for the new stock 13 times higher than supply, which shows that despite the credit crunch in the banking sector and the slow market activity in 2011-12, there is still liquidity in the national economy, and that the BVMT can be an effective tool in mobilising funds.
The e-technology firm AeTech received final approval on February 5 for its IPO on the Alternative Market. The subscription period concluded March 12, and the first trading day is expected in the weeks to come. If AeTech generates the same investor enthusiasm as Land’Or, this could help to create momentum for other companies considering a capital increase through the BVMT.
In total, BVMT authorities are expected to have approved eight new listings by the end of March. Besides Land’Or and AeTech, the remaining IPOs will be executed once final approval has been granted by the regulatory authority, the Conseil du Marché Financier. If plans proceed as expected, the IPOs already tentatively approved for 2013 stand to boost market capitalisation by a minimum of TD1bn (€487.36m) – an important step toward increasing the BVMT’s weight in the economy.
Thus far, the small size of the Tunisian market has helped to ensure its stability, particularly compared to some of the larger regional bourses, which have seen cumulative outflows since 2011. And yet, while the BVMT represented roughly 12% of capital formation for Tunisian businesses in 2010, this percentage declined to just over 5% in 2012, due primarily to a dip in the amount of corporate and government debt issues on the bond market.
In an effort to minimise the negative effects of 2011, BVMT authorities have engaged in a three-year programme to boost market awareness, and to encourage and structure new IPOs. These activities set a positive tone for the future, but for the BVMT to truly realise its potential as a source of financing for the economy, Tunisia must first see a return to political stability and improve visibility on the constitutional drafting process.