Revisiting the idea of privatising the Malta Stock Exchange

Just over a decade ago, I published an article titled ‘A roadmap for the Malta Stock Exchange’, in which I had reported that during the 2016 Budget Speech, the Finance Minister at the time, Hon Edward Scicluna, announced that the Malta Stock Exchange (MSE) and the Ministry of Finance had established a committee in order to draw up a roadmap with the aim of strengthening and developing further the local capital market.

In the article which was published in November 2015, I had remarked that in order to ensure a higher degree of success in growing the local capital market, the privatisation of the MSE, through the introduction of a strategic partner and the participation of market participants (MSE members), was in my view, fundamental. I had requested this idea to feature among the initiatives on the agenda of the panel of experts devising the roadmap.

Almost a year later, the Chairman of the MSE Mr Joseph Portelli, who has retained his role since then, launched the National Capital Markets Strategic Plan. I had also given due coverage to this highly important event in my weekly column at the time. I had highlighted that in my view, the most important initiatives that were part of this comprehensive plan were those focused on: (i) increasing liquidity by revamping market-making rules; (ii) extending trading hours to six hours daily; (iii) the listing of Exchange Traded Funds and REITS and (iv) promoting Malta and Maltese companies to international institutional investors. No mention was made at the time of the possible privatisation of the MSE.

While a number of other initiatives that had been part of the National Capital Markets Strategic Plan launched at the end of 2016 did indeed help the development of the capital market over the years especially with respect to the corporate bond market as evidenced by the record issuance last year, a point worth bringing up for discussion once again is the promotion of Malta and Maltese companies to international institutional investors.

Over the past two years, I clearly highlighted the unfortunate state of the Maltese equity market and mentioned some action points to try to help improve trading activity given the continued low volumes across all equities with the exception of Bank of Valletta plc which dominates the activity on the Borza.

In view of the prolonged very subdued investor sentiment among the local investor community, the attraction of foreign institutional investors to the Maltese capital market could be one of the few remaining initiatives to reinvigorate equity volumes thereby providing a potential exit route for a number of local investors who feel increasingly frustrated at the evident difficulties in exiting almost any equity due to the lack of an active two-way market.

A new breed of investors is urgently needed for the public to have the ability to exit their positions after the lacklustre performance of the equity market over the past several years. The inclusion of new participants to the equity market can either be through the liquidity provider programme that was launched by the MSE in 2025 or via the potential appetite from some international investors. Unfortunately, to date, no locally-based institution has taken the initiative to venture into the liquidity provider programme to help deepen the equity market. As such, the weak volumes across most equities remains evident on a daily basis.

One must be realistic on the degree of success in attracting international investors in view of the very small size of the market with only one company, BOV, having a market capitalisation in excess of €1 billion.

Over the past nine years since the launch of the National Capital Markets Strategic Plan, I am not aware of any specific events organised by the MSE or other organisations with the aim of promoting Maltese companies and the local capital market to international institutional investors.

I believe that the privatisation of the MSE through the involvement of a strategic partner is very much linked to the ability of attracting international institutional investors to consider the Maltese equity market.

Incidentally, the initial idea of the potential privatisation of the MSE had been aired by the Government at the time when Mr Joseph Zammit Tabona was the Chairman of the MSE in the early 2000s.

Over the past few years, the Government of Malta has not provided any details to the public on its strategy for the capital market and the possibility of privatising the stock exchange. Equally important would be to have the MSE itself become a publicly traded company similar to that evident across Europe and also in other parts of the world.

In fact, an interesting model that one could follow is that of the Kuwait Stock Exchange. In early 2019, a consortium made up of the Athens Stock Exchange and three other strategic investors were awarded the tender for the acquisition of a 44 per cent shareholding in Boursa Kuwait. This was followed by an Initial Public Offering by the end of 2019 for 50 per cent of the shares with 6 per cent retained by the government. The aim of Kuwait’s Capital Markets Authority was “to boost capital inflows and liquidity on the exchange by increasing its international appeal”. The Athens Stock Exchange is defined as “the qualified international operator” for Boursa Kuwait and provides advisory and technical services to support the expansion of Boursa Kuwait’s product offerings and infrastructure as part of their long-term strategic partnership.

Many Maltese equity issuers may fail to appreciate the benefits of having international institutional investors considering investment opportunities locally. The involvement of international institutional investors is likely to immediately result in a more liquid secondary market. One of the main benefits of a more active secondary market together with the presence of international investors is that it would make this much easier for a company to consider the issuance of additional shares to fund their local or international expansion plans (companies cannot solely depend on debt funding). A number of directors and senior management officials of several equity issuers regularly complain on the lack of responsiveness to important announcements and the fact that equity prices are not reflective of the true worth of a company. A larger pool of investors should help smoothen out some evident price anomalies on the market. In turn, this would also increase the possibility for any sizeable shareholders to seek an orderly exit route which is a common occurrence across the international capital markets.

Traditionally, companies view stock exchanges and capital markets as avenues to raise capital in order to consolidate and expand their businesses, thus becoming value creators in their respective sectors. Achieving greater liquidity, depth and scope across the local capital market should provide sources of wider economic development and growth for Malta. A concerted effort by policymakers and various stakeholders is required to enable the equity market to fulfil is proper role to Maltese businesses, investors and the wider economy.

The article contains public information only and is published solely for informational purposes. It should not be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. No representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, nor is it intended to be a complete statement or summary of the securities, markets or developments referred to in this article. Rizzo, Farrugia & Co. (Stockbrokers) Ltd (“Rizzo Farrugia”) is under no obligation to update or keep current the information contained herein. Since the buying and selling of securities by any person is dependent on that person’s financial situation and an assessment of the suitability and appropriateness of the proposed transaction, no person should act upon any recommendation in this article without first obtaining investment advice. Rizzo Farrugia, its directors, the author of this article, other employees or clients may have or have had interests in the securities referred to herein and may at any time make purchases and/or sales in them as principal or agent. Furthermore, Rizzo Farrugia may have or have had a relationship with or may provide or has provided other services of a corporate nature to companies herein mentioned. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Foreign currency rates of exchange may adversely affect the value, price or income of any security mentioned in this article. Neither Rizzo Farrugia, nor any of its directors or employees accepts any liability for any loss or damage arising out of the use of all or any part of this article.