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, 19 th May 2015

Overview of Capital Market Development  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 Workshop - Casablanca 19 May 2015 2

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 3

Capital Market Development Seq equen encin ing is imp mpor ortant tant Source: IMF WP/03/116, Karacadag-Sundararajan-Elliott Workshop - Casablanca 19 May 2015 4

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  ‘ N ormal’ 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 5

Demand and supply side reasons for underdevelopment Ownership structure of listed Specifics of companies companies • Mainly SMEs • Few majority owners • Not listed or no intention to list • Small free float • Rely on bank financing • Prefer to list abroad Lack of attractive stocks Low quality • Few top performers Low quantity Venture Capital/Private of supply of supply • Corporate Governance Equity • Partly weak fundamentals • Underdeveloped or even not • Value orientation existing Low Under • Lack of growth segment • Exits rare liquidity performance Lack of investor interest Pension system Domestic institutional • Lack of private pension investors • Insufficient number of local schemes Low demand Low demand • Missing capital market institutional investors of retail of institutional • Low level of local stock orientation investors investors investments Private stock ownership • Low level of retail investors International investors • Based on voucher privatisation a big number of • Lack of demand based on low weighting of passive stock owners local market in international portfolios • Lack of awareness/education • Lack of research coverage • Invest outside of country 6

Improvement levers - Recommendations  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 7

Improvement levers - Recommendations  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 8

Key themes 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 9

Moving from Recommendations to Action  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 Workshop - Casablanca 19 May 2015 10

Leverage Impact – Enhance Value EBRD is well posi siti tione oned 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 oduct 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 orta tant nt role in securi uriti ties s mark rket et developm opment 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  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 12