Category: Interview

Financing of Small Medium Enterprising (SME) through equity finance is one of the most important processes for the economy of an emerging country because it helps the businesses, which for objective reasons, are not classified from banks as appropriate for crediting. This alternative form of investing it is not only cheap and favorable and for businesses because of risk sharing from investors, but also helps them (businesses) to benefit from professional investors knowledge and experience and to standardize their activity.

Equity financing, transfer of know – how and standardization of procedures enables SMEs with a financial discipline by ensuring long term sustainability in the market. Also this process serves as front face for SMEs to enter in the financial market or raise capital through the Stock Exchange. Professional investors who offer alternative funds for SMEs familiarize the latter with the culture of financial transparency and standardization of financial reporting, by preparing these small businesses for the banking sector or listing in the stock exchange.

 

EuroNews Albania

In the interview held today (09.01.2020) for the EuroNews Albania media, the Chief Executive Officer of the Albanian Securities Exchange, Mr. Artan Gjergji, was focused into the immediate impact that had on international financial markets.

Financial markets, Mr. Gjergji said, are based on important factors such as trust and transparence. Both these factors create positive and negative expectations on investors therefore affecting their decision -making process in financial market transactions. For this reason, the investors are very sensitive in their decision – making process from the political volatilities. As far as the political actions between USA and Iran concerns, they had an immediate effect on the international stock exchanges (a drastic decrease of indexes and stock prices). However, after the international diplomacy brought down the tones of the political debate, it was immediately reflected by calming the volatility of the international stock markets.

While answering the question of the EuroNews Albania reporter regarding the possible investment alternatives that exist in the domestic market, Mr. Gjergji highlighted the government debt instruments (T-Bills and T-Bonds) as a potential investment alternative. These financial instruments offer a more adequate rate of return (interest) than the bank deposit, but they should be in accordance with the investor’s risk appetite and their investment maturity. Mr. Gjergji also highlighted once more the fact that, except the classical instruments such as deposits and government debt securities, currently in the Albanian financial market there are present other favorable investment alternatives for citizens such as investment funds and pension funds. During the year 2019, these alternatives yielded for investor’s returns at the level of 5%-7%. This implies that the interest of citizens toward these funds is increasing.

To follow the full interview in EuroNews Albanian media, click here.

Albania’s new stock exchange, the Albanian Securities Exchange (ALSE), has racked up a year of trading in government paper and is poised to start accepting the country’s first ever private sector IPOs this year.

ALSE, launched by a group of financial markets specialists, is a fresh start for the Albanian capital market after the dismal record of the Tirana Stock Exchange (TSE), which in its 18 years of operation never had a single listed security or carried out a single transaction.

The decision to start anew was made back in 2014. “ALSE was an idea of a bunch of financial markets guys who studied abroad. We came together with a project and tried to raise funds from domestic sources to make it happen,” says the exchange’s CEO Artan Gjerji in an interview with bne IntelliNews.

“The support from Credins Bank was critical as we wanted support from reputable financial institutions and not just anybody who has some money. We needed to be serious and we succeeded. We managed to attract even the interest of the American Bank of Investments (a bank with US capital operating in Albania) and that of AK-Invest, one of the biggest domestic non-banking financial institutions.”

ALSE received its licence from the Albanian financial markets regulator in July 2017. This was followed by a period of interfacing and testing with the central depository system for government securities administered by Albania’s central bank, the Bank of Albania, after which, says Gjerji, “for the first time in the economic history of Albania we started trading securities officially on February 22, 2018”.

Turnover on the exchange amounted to €16.5mn between February 22 when trading started and the end of October, with over 100,000 securities units bought and sold in 85 transactions.

In the last few days, ALSE announced that it had received its Market Identifier Code (MIC), and on April 25 it reported the first transaction by a brokerage firm (rather than a bank).

For its first year of operation, ALSE was restricted to trading in government paper, but should be able to start trading corporate paper before long, once the infrastructure is in place. “One hurdle to be overcome was the lack of a central depository,” explains Gjerji.

At the end of January, the Albanian Financial Security Agency (AFSA) licensed the Albanian Securities Registry (ALREG), in an important step for the market. “ALREG’s licensing was a necessary step to enable the trade of corporate securities in ALSE, because this process is impossible without a registry where securities ownership data are held (a central depository) and transactions are executed with them,” says Gjerji.

“However, ALREG will also need a second licence, before starting the activity, therefore it will also apply to the Bank of Albania for a licence to operate as a settlement system for payments executed at ALSE. After having the additional licence from the central bank, ALREG will perform the whole process of clearing and settlement of corporate securities transactions, by providing to ALSE the path to trade shares and corporate bonds.”

IPOs on the way
This should pave the way for Albania’s first ever IPOs by the end of the year. “Hopefully we will succeed in having the first IPO, let’s say within 2019,” says Gjerji. The exchange is already talking with potential IPO names and while Gjerji can’t disclose which companies are interested, he says they come from Albania’s fast-developing construction sector, broadcasting and the financial sector.

Back in March 2018, Prime Minister Edi Rama talked of a possible listing by state energy utility OSHEE. However, while ALSE would be happy to see big state companies use the new exchange, Gjerji says: “We are focused more on private companies because there is not much left to be privatised in Albania, maybe six or seven big companies. If the government decides at the same time to carry out an IPO of any state-owned enterprises, that would be a big help.”

In addition, some of the major corporates in Albania have already issued bonds, and listing bonds on the exchange may be a more natural step for them.

This would be a major step in a country where the capital market development has been stymied by the lack of an effective stock exchange. Albania was a few years behind the other former communist countries in creating its stock exchange in 1996, but the real problem with the TSE was that unlike in the cases of virtually all the other states in the region, it didn’t benefit at all from the post-communist wave of privatisations.

“From Moscow in the north to Macedonia in the south, even when companies were privatised to investors, a small package of shares was sent to the local stock exchange, which provided stock exchanges with their first instruments, and gave them the chance to build trust. Later, when businesses tried to launch the first IPOs on the stock exchanges, their way had been paved by the privatised state-owned enterprises,” explains Gjerji.

“This never happened in Albania. We privatised companies 100% to strategic investors, and never sent a single company to be listed to the Tirana Stock Exchange, even though the finance ministry was its 100% shareholder.”

Without a functioning stock market, companies have mainly depended on banks for finance until now. But while this was for a long time an adequate source of funding, things began to change with the international financial crisis of 2008.

“Albania’s economic development in the past was based on the banking sector, but as businesses matured, the need for a capital market started to grow. For the first two decades [after the fall of communism] the banking sector could cover all the needs of business, but after the crisis in 2008 the central bank needed to become more prudential and started putting more conditions on the banks so they became more careful in granting new loans,” says Gjerji. “Like other countries in the region, Albania has a non-performing loan problem. This brought banks to a position where they cannot serve all the needs of business any more.”

Blodin Cuci of the Albanian Securities Trading Association (ASTA) notes a recent tightening. “In the last three to four quarters there has been a decrease in the traditional credit facilities offered by the banks,” he tells bne IntelliNews. “If we analyse from a macro point of view, all this pressure being created on the banking system has somehow to be addressed, and in my opinion it can be addressed through the stock exchange or corporate bond issuance … There is a lot of room in terms of potential market development.”

Albania’s international partners including the International Monetary Fund (IMF) and the European Commission have pointed to the need to develop Albania’s capital market, with the EC writing in a 2018 report on Albania, “There is significant scope for expanding equity and corporate bond finance,” adding “provided the supervision capacity is strengthened and transparency and governance in the private sector is improved”. The IMF had a similar message, saying that, “Developing capital market institutions requires high transparency and governance standards.”

Building trust
Corporate governance among large corporates has improved in recent years, as they have sought loans from professional lenders including international financial institutions (IFIs) to expand, though corruption and lack of confidence in financial institutions remain perennial problems in Albania.

ASTA’s Cuci says he sees Albania as a “land of opportunities” in financial markets. He outlines the way financial assets are overwhelmingly concentrated in bank deposits, with a smaller share in government papers and a “very fragmented market in terms of corporations issuing private corporate bonds”. “Albania is a developing country and as such a lot of financial infrastructure is missing,” he says. This means the early bird initiatives like ALSE, “are the ones that … expand the financial instruments available, create trading infrastructure and all the infrastructure around financial services.”

The market for potential investments into listed paper, including among retail investors, is strong. There is a substantial pool of money in pension and investment schemes, not to mention around €8bn of time deposits in the banking system from individuals, according to central bank data.

However, the legacy of the failed TSE could act as a brake on potential investment. “Albania was in a kind of trap because we already had a stock exchange in the past. Everybody has heard of the TSE and knows it failed,” says Gjerji. On top of that, he added, “There also is still the bad taste from the pyramid schemes back in 97 —everyone who doesn’t understand an instrument thinks of pyramid schemes. We are trying to inform, to convince people all the time.”

ALSE has been reaching out in particular to university students, seeing them as the investors of the future. “The whole market needs huge financial education for every kind of product. We are working intensively with universities, where we hold conferences at least once a month in cooperation with their economic faculties. Investing in younger generations is a mid-term investment because in a few years, when we are ready and these guys might be ready to start investing, they will all know there is a stock exchange and how to invest in it.”

Source: bne IntelliNews

To read the full article (Albanian Language) click here

TIRANA (Albania), April 5 (SeeNews) – The nascent private Albanian Securities Exchange (ALSE) hopes that an initial public offering of shares of state-owned power distributor OSHEE will be possible this year if there is political will and government support, ALSE head, Artan Gjergji, told SeeNews.

Albania’s Prime Minister Edi Rama said at a meeting with EU officials last month that the government intends to float through an initial public offering (IPO) the shares of OSHEE by the end of 2018.

“I guess that Prime Minister Edi Rama’s statement is part of the strategy in the energy sector. Let’s hope that the government is thinking seriously about this,” Gjergji, executive director of ALSE, said in an interview with SeeNews earlier this week, adding that the process of preparing an IPO takes at list six months in developed markets.

Gjergji said he was sure the listing of OSHEE can be done this year provided there is a genuine political commitment and added that by listing a state-owned company, the government will set the first example of financial transparency and will send a good message to the market about its will to formalize the domestic economy.

“It’s not a problem if they are going to list it in November, December or in January next year. The important thing is to do the process in the right way in order to build trust in the domestic financial market.”

ALSE was founded by Tirana-headquartered Credins Bank and American Bank of Investment (ABI Bank) with 42.5% shareholding interest each and AK Invest, one of the biggest non-banking financial institutions in Albania, with 15%. Credins Bank and ABI Bank hold 0.13% and 2.85% of the total assets of Albania’s banking system, respectively.

The Albanian Financial Supervisory Authority (AFSA) licensed ALSE in July 2017 as the first private securities exchange in the country. Since the start of operations in February 2018 only government securities have been traded on the exchange but Gjergji explained that ALSE had been granted a full operating licence, meaning that once the full institutional infrastructure is in place, ALSE can operate as an exchange for the full range of securities, including government bonds, corporate bonds and company shares.

“The licence given to ALSE by AFSA has one condition. They made it obligatory to trade only government securities in the first year because AFSA wants to build trust in the market. This is why they want to go slowly but in a sustainable way,” Gjergji said.

He added that the one-year period is not carved in stone, though.

“If AFSA is convinced that ALSE is performing well, and on the other side, the government has some plans or businesses have some plans to be listed in the near future, I am pretty sure they will revise the one-year limit.”

Gjergji pointed out that ALSE is offering a viable alternative of financing to bank loans to companies seeking to raise capital in order to expand their activities.

“Moreover, after the 2008 crisis, the conditions set by the European Central Bank and the Bank of Albania put banks in a conservative position in terms of lending to businesses,” Gjergji explained and added that Albanian companies are part of a growing economy and are always in need of fresh capital but the banking sector cannot fully satisfy that need.

“ALSE is ready to list a company but the financial infrastructure and the process are not easy because it is the first time in the history of the Albanian economy that a company will start raising capital through the stock exchange,” Gjergji commented.

Gjergji also said that the plans of the government to list a state-owned company is more than welcome by ALSE but the new exchange is also ready to start listing private companies as well. He said that ALSE has one of the lowest listing requirements in terms of free float in the region, of 10%, while other stock exchanges in the region start with 15%, 20%, or 25%.

“ALSE listing criteria are really accommodating for the whole structure of Albanian businesses,” Gjergji opined.

“I am not talking only about OSHEE, as there are also six or seven state-owned companies which can be potentially listed on the ALSE, giving the public the right to be shareholder. This is a good example commonly used in the eastern bloc of former communist countries starting from Russia, Macedonia, Montenegro, Croatia or Poland, etc.”

Gjergji went on to explain that ALSE organizes the marketplace in sub-segments in order to create opportunities for different companies with different requirements to fit into ALSE’s criteria and raise capital.

ALSE is using the same electronic trading systems used by Slovenia’s Ljubljana Stock Exchange until several years ago. The same system is used also in Montenegro, Macedonia and the Bosnian bourses in Banja Luka and Sarajevo, Gjergji said.

Gjergji said that ALSE is open to regional cooperation, adding that it already has good relations with experts and CEOs of the stock exchanges in the region of Southeast Europe.

“We had a conference in January and invited six or seven CEOs from the stock exchanges in the region to share their experience with us. On the other side, we have two or three regional experts helping ALSE in its daily operations,” Gjergji added.

He also said that a future goal of ALSE will be to become part of a regional securities trading platform such as the SEE Link launched by the stock exchanges of Bulgaria, Macedonia and Croatia and supported by the European Bank for Reconstruction and Development. However, ALSE needs to build trust at home first.

“Talking about the SEE Link platform, we are OK with that, but we cannot forget that in order to become part of a regional stock exchange we need to have a history in the domestic market first. This platform puts all the companies and brokers in the same place, and facilitates the integration and trading among Balkan countries but before going there, we need to have a market, listed companies, to educate our public and build trust.”

Building trust among financial professionals as well as the general public will be a challenge for ALSE, considering the demise of state-owned Tirana Stock Exchange and the memories of the pyramid financial schemes of the 1990s in Albania.

The Tirana Stock Exchange had been set up as a department of Bank of Albania with the aim to start operating separately after a certain period of time. The core activity of the bourse included the organization of a primary and secondary market for short-term government securities. The Tirana Stock Exchange split from the central bank in July 2002 to become an independent state-owned company. The bourse had obtained a licence in 2003 and renewed it in 2005 but it never became a stock exchange proper and a reliable partner of Albanian businesses, remaining just a legal concept. For this reason, AFSA decided to suspend the licence of Tirana Stock Exchange in April 2014.

“The Tirana Stock Exchange never had the chance to list and quote securities, it never had any financial support, despite the fact that their main shareholder was the Ministry of Finance. ALSE has this kind of support and has one of the most developed electronic trading systems in the region,” said the executive director of ALSE.

Gjergji explained that ALSE had sprung up as a joint initiative of financial professionals in Albania, who had come up with the idea of setting up an electronic trading platform as an alternative to the Tirana Stock Exchange.

“Knowing the potential of supply and demand for securities and capital in the Albanian economy, we thought that a mechanism of matching supply with demand would be necessary for the market. Therefore, we prepared a project, and after that, we tried to raise capital in order to have financial institutions supporting our project. Credins Bank decided to finance our project in 2014, and after that, we had the support of AK Invest and ABI Bank, who joined the initiative in 2016.”

Restoring the trust of retail investors in financial instruments will be particularly challenging in Albania where memories of the collapse of the Ponzi schemes some 20 years ago are still rife. Lured by preposterously high interest rates on deposits, thousands of Albanians rushed to put their money into financial pyramid schemes that sprang up in the country following the collapse of Communism. Predictably, the get-rich-quick schemes swiftly collapsed in 1996-1997, depriving people of their savings and stirring social unrest that brought down the government.

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To read the full article (Albanian Language) click here