Capital Market Development in Morocco Workshop on Improving SME - - PowerPoint PPT Presentation

Capital Market Development in Morocco

Workshop on Improving SME access to Capital Markets Casablanca, 19th May 2015

Overview of Capital Market Development

Workshop - Casablanca 19 May 2015 2

• Introduction
• Joint IFI efforts – Deauville Partnership – Capital Market Development focus
• Overview of current financing environment for corporates
• Potential improvement levers
• From passive to active - Capital Market Initiatives already ‘live’ by EBRD
• Conclusion

Capital Market Development in Morocco

• G-8 Finance Ministers‘ Deauville Partnership
• Module on development of local currency capital markets in four transition countries – Jordan, Egypt,

Tunisia, Morocco

• Joint-IFI assessment mission undertaken in March 2013
• Scope of capital market assesment;
• Macroeconomic Environment
• Banking Sector, money and hedging market
• Government Securities Market
• Corporate Bond Market
• Equity Market
• Islamic finance
• Investor base
• Market infrastructure
• Impediments and bottlenecks identified
• Recommendations – set out measures to improve the functioning of the capital markets

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Capital Market Development

4 Workshop - Casablanca 19 May 2015

Seq equen encin ing is imp mpor

• rtant

tant

Source: IMF WP/03/116, Karacadag-Sundararajan-Elliott

Current financing environment

• Banking sector has proven resilient but plays a limited role in financing SMEs
• Structural issues curtail development of a more dynamic sector
• ‘Normal’ market mechanics and risk management instruments are largely absent
• Lack of incentive to service SME sector
• Corporate Bond issuance has increased significantly
• Relatively developed market but dominated largely by State-owned utilities and Banks
• Secondary market liquidity very limited which means that pricing reference point is absent
• Demand side dominated by institutional investor base with no international investor activity
• Buy and hold approach compounds liquidity problems
• Equity Market underutilised
• Equity capital not playing a major role in financing
• Valuation concerns and lack of liquidity are key constraints
• Lack of supply and small free float
• Private equity exits through the stock exchange very rare
• IPO supply limited

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Demand and supply side reasons for underdevelopment

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International investors

• Lack of demand based on low weighting of

local market in international portfolios

• Lack of research coverage

Domestic institutional investors

• Insufficient number of local

institutional investors

• Low level of local stock

investments Lack of attractive stocks

• Few top performers
• Corporate Governance
• Partly weak fundamentals
• Value orientation
• Lack of growth segment

Ownership structure of listed companies

• Few majority owners
• Small free float

Private stock ownership

• Low level of retail investors
• Based on voucher privatisation a big number of

passive stock owners

• Lack of awareness/education
• Invest outside of country

Pension system

• Lack of private pension

schemes

• Missing capital market
• rientation

Venture Capital/Private Equity

• Underdeveloped or even not

existing

• Exits rare

Specifics of companies

• Mainly SMEs
• Not listed or no intention to list
• Rely on bank financing
• Prefer to list abroad

Low quantity

• f supply

Low quality

• f supply

Low demand

• f institutional

investors Low demand

• f retail

investors

Low liquidity Under performance Lack of investor interest

Improvement levers - Recommendations

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• Banking Sector
• Allow higher degree of fluctuation of interbank deposit rates to restore market price

signaling function

• Prepare strategy for gradual further liberalization of interest rate setting mechanism

in interbank money market

• Introduce risk management tools to reduce maturity and interest rate mismatches
• Equity Market
• Address structural issues to encourage long-term supply , focusing on large flagship

issuances and continuous flow of new issues from average sized issues

• IPOs of state-owned enterprises can help jump-start the public equity market
• Explore options in relation to amending the ownership structure of the exchange
• Encourage development of research functions, capabilities and best practices
• Introduce new instruments – REITS, infrastructure funds, ETFs and SME funds
• Education and public awareness can play an important role

Workshop - Casablanca 19 May 2015

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• Corporate Bond Market
• Ensure effective and speedy resolution of bankruptcy when needed
• Enhance credit analysis and consider the benefits of introducing external credit

ratings to bond market

• Implement capacity building for selection of managers and IR management
• Encourage local banks to provide secondary market liquidity for their own bonds
• Revise valuation rules for institutional investors of corporate bonds to reflect credit

spread changes

• Other areas also relevant and covered in the assessment work undertaken;
• Government debt
• Market infrastructure
• Sukuk

Workshop - Casablanca 19 May 2015

Improvement levers - Recommendations

Key themes

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• Policy makers face a delicate balance between addressing the immediate challenges

and fostering long-term capital market development.

• Addressing financial stability needs in the short term
• Stimulating entrepreneurial activities and ultimately employment growth
• Developing viable and sustainable sources of finance (including via capital markets)
• Strong coordination as well as a shared long-term perspective is essential
• Casablanca Finance City can play an important role
• Prioritise key actions at the local level
• Utilise the IFI community efficiently – investment and technical assistance
• Todays topic features strongly as a regional theme and is a key focus for EBRD

Workshop - Casablanca 19 May 2015

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• EBRD is already active in a number of areas;
• Derivatives

 Assistance to develop derivatives legislation in Morocco with Ministry of Economy and Finance

• REITs

 Representatives from the Bank’s LTT and LC2 Team are engaged with the authorities on the development of the Real Estate Investment Trusts (REITS) in Morocco.

• Stock Exchange

 Various areas for assistance are considered for Casablanca Stock Exchange

• SME access to capital market finance

 Initial study on SMEs in the SEMED region to gain a better understanding of the state of readiness to access capital market funding  The study may also highlight existing impediments faced by SMEs in accessing finance.

• Flagship report on SEMED region

Moving from Recommendations to Action

Workshop - Casablanca 19 May 2015

Leverage Impact – Enhance Value

EBRD is well posi siti tione

• ned

d to suppo pporti ting ng local capita tal mark rket et developme pment nt based d on its ts privat ate sector r focus us and servi vice ce/p /product

• duct range:
• Policy dialogue
• Technical cooperation projects
• Local currency lending
• Asset Backed Securities/Covered Bonds
• Unsecured Bond issues – senior/subordinated
• Small Business Support services
• Equ

quity y and bonds s play an imp mpor

• rta

tant nt role in securi uriti ties s mark rket et developm

• pment

ent

• Pre-IPO and IPO Investments in Private Equity Funds
• Corporate Bond Investments
• Investments/Equity participation in private sector companies

EBRD’s acti tivi viti ties es str trongl ngly y suppo pport t local capita tal mark rket et developme pment nt

Casablanca | 19 May 2015 LC2 11

Setting the Tone for the Workshop

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• SME access to capital market finance is an area where we feel we can make a

meaningful intervention

• Encourage an open and honest discussion and exchange of views
• Leverage the expertise present at this unique and innovative workshop
• Expertise from local market, combined with..
• International perspectives and experiences
• Local commitment to the issue is clearly demonstrated
• EBRD stands ready and willing to play an active role

Workshop - Casablanca 19 May 2015