Malawi Stock Exchange to Offer Alernative Exchange for SMEs
Posted by stb0327 on January 15, 2007
For those investors seeking additional risk on top of interest, exchange rate and country-risk Malawi brings to the table, this AltX may be a new vehicle. The next thing is finding a local investor to facilitate your way into this market.
Article in today’s Malawi Nation:
Ten-year-old Malawi Stock Exchange (MSE) is expecting a baby. To be christened the Alternative Exchange (AltX), the new arrival is already being billed as the saviour of small and medium companies and a possible source of joy to investors interested to own shares in local firms.
Confirming the development, MSE chief executive officer Symon Msefula told Economic Report that the AltX—expected to be launched in the next few weeks—is the bourse’s idea of diversifying its range of trading instruments on the financial market.
“We have started 2007 with the creation of the alternative market. This higher risk premium market targets smaller and younger limited liability companies to raise finance from the public,” said Msefula.
The exchange is expected to be an avenue for small and medium enterprises to raise cheaper capital and create opportunities for local and international investors to be shareholders in the country’s companies.
It will allow smaller but fast-growing businesses, start-ups and family-owned enterprises which are of high quality and have high growth potential, to raise capital, widen their investor base and have their shares traded in a regulated market by issuing new shares without going through stringent listing requirements.
For investors, the AltX is expected to expand their investment horizon with companies that need to comply with the rules and regulations of the MSE and participate in high standards of corporate governance.
Currently, the 11-member principal MSE market requires a consistent profit and good cash flow record in the last three years prior to listing, a subscribed capital of at least K100 million represented by no less than 30 million ordinary shares, 300 being the minimum number of public shareholders.
But for a company to get on board the alternative market, the bourse will be looking for a one year profit history in the year prior to listing, a minimum subscribed share capital of K25 million and a minimum of 10 million ordinary shares in issue.
For the new arrival, the MSE has also reduced the number of public shareholders to at least 100 for ordinary shares and 25 for preference shares.
Preference shares in a company give their holders an entitlement to a fixed dividend but which do not usually carry voting rights.
Unlike preference shares whose holders get a fixed dividend which, if not paid, usually accrues interest, dividends on vote-carrying ordinary shares are uncertain and variable, that is, high when the company does well, poor or nonexistent when it performs miserably.
But financial analyst Thom Mpinganjira, while welcoming the new market, said the AltX is a high risk trading arena and warned of failure unless it is well-administered and regulated.
Mpinganjira, managing director of First Discount House, while noting that in other countries the AltX has been a ladder for small companies to graduate to the mainstream market after realising the importance of listing, stressed the need for necessary mechanisms to protect investors.
“However, I cannot comment much on the Malawian situation as I am yet to look at the rules and regulations governing it,” said Mpinganjira, the first chief executive officer of the MSE.
On his part, Stockbrokers Malawi Limited chief executive officer Armstrong Kamphoni said the introduction of the AltX will deepen the capital market and increase the volume of shares on the bourse.
“This is a very welcome development. It will provide a chance for small and medium enterprises to raise cheaper capital. In fact, we should have had it many years back,” said Kamphoni.
Malawi Confederation of Chambers of Commerce and Industry chief executive officer Chancellor Kaferapanjira said the AltX has come at a time when most enterprises are failing to raise venture capital.
Currently, the country’s expensive financial system only offers short-term working capital and has until now been shy on long-term financing.
“Now that there is some confidence in the economy with the fundamentals in place, the introduction of the alternative market is a very welcome move as it stands to spur the development of the local industry. But necessary measures need to be put in place to ensure that investors’ funds are secure,” said Kaferapanjira.
On security for investors, Msefula said the alternative market’s applications will go through the same rigorous vetting by MSE as those for candidates of the main market “as we must still protect the investor.”
“The MSE’s role is to offer alternative accommodation to the economy’s savings, to deploy these resources as optimally and as efficiently as possible. We recognise the needs of our financial system and we will play a crucial role in creating a system that is as good as those that the international investor is familiar with.
“The heavier speculative nature of this market is recognised, so prospectuses and pre-listing statements for AltX companies will carry a warning about this. It is a market for the sophisticated investor, with a higher risk appetite than most in the market, but Malawi needs this by virtue of the size of the majority of our economic agents,” said Msefula.
The Bankers Association of Malawi executive director Fanuel Kumdana described the introduction of the AltX as a welcome development, saying it will complement what the existing financial institutions are doing.
He said the demand for financial services in the country is quite huge hence the need for more players on the market.
“Although I haven’t seen the MSE package, I think its a welcome idea. As banks we don’t see it as a challenge. It’s just one of the ways to satisfy the overwhelming demand for financial services in the country. What matters now is the marketing strategy,” said Kumdana.
Malawi’s AltX comes more than three years after South Africa launched the continent’s first alternative exchange in October 2003 as a parallel market to the JSE Securities Exchange. Zimbabwe, Botswana and Zambia also boast AltX in form of over-the-counter listings.