Work in progress: Algeria looks to boost capital markets liquidity

With traditional lending constrained by lower hydrocarbons receipts, public authorities are redoubling their efforts to develop Algeria’s capital markets. By encouraging listings on the country’s equity and debt markets, officials are looking to relieve pressure on the national Treasury and create new investment opportunities for financial institutions. “The Treasury and the state no longer possess the budgetary means to finance development projects at the same level as in recent years, which has resulted in a redistribution of funding channels and underscoring the need to develop financial markets,” Abdelhakim Berrah, president of the Commission for the Organisation and Oversight of the Stock Market, told OBG.

Given the small size of the exchange and relatively low number of investors, liquidity has historically been an obstacle to development. However, officials aim to combat this through a combination of privatisation of state-owned companies and private sector listings.

Room For Growth

Operational since 1999, the Bourse d’Alger, with only five listed equities, has considerable potential. In recent months, momentum has picked up, with the bourse’s market capitalisation rising by 8% in 2015 to finish the year at AD16bn (€132.4m), up from AD14.8bn (€122.4m) at the close of 2014. However, combined market cap for the exchange was equivalent to less than 1% of GDP in 2014, compared to 62.7% for Morocco and 21.7% for Tunisia, suggesting there is scope for growth.

In April 2016 Biopharm, a private Algerian pharmaceuticals company, launched an initial public offering (IPO), raising $6m in its first week. Stakeholders pointed to Biopharm’s financial results and its focus on the health sector, which is expected to grow as the Algerian population ages, as offering potential to attract further investment.

In addition to Biopharm, other listed equities include majority state-owned pharmaceuticals manufacturer SAIDAL, partially state-owned hotel operator Entreprise de Gestion Hôtelière El Aurassi and privately owned Alliance Assurances and Nouvelle Conserverie Algérienne de Rouiba, a food and beverage producer. “At the institutional level, it is important to develop collective savings instruments that allow investors to invest in a diversified portfolio of securities, which reduces risk and increases liquidity in the market,” Mohammed Khelfaoui, general manager at Tell Markets, told OBG. “A whole industry of asset management for third parties must also be created – it is important to encourage insurance companies and pension funds to invest in shares. This will bring more capital to Algerian companies.”

Partial Privatisation

Considering the scale and scope of state-owned companies in Algeria, public entities are expected to play a central role in the government’s efforts to boost liquidity on the exchange, attract new investors and energise trading of existing shares. According to the 2016 Finance Law, state companies are permitted to float up to 66% of their shares, though ownership remains limited to national resident shareholders. There has already been some action on this front, with cement company Société des Ciments Aïn El Kebira (SCAEK) launching an IPO in mid-May 2016.The company was looking to increase its capital by 33% through the sale of close to 12,000 new shares, to be divided among institutional investors (37%), such as banks and insurance companies; individual investors (37%); legal entities (25%); and company employees (1%). The IPO closed in June 2016 but was cancelled due to lack of interest.

Four additional public companies are also expected to list before the end of 2016, bringing the number of listed companies to 10. SCAEK’s parent company, Groupe Public des Ciments d’Algérie, is planning to list another two subsidiaries, while the bank Crédit Populaire Algérien, Cosider Carrières and Compagnie Algérienne d’Assurance et de Réassurance are also expected to float, according to local press reports.