The Stock Exchange started trading in March 1996 and no companies are yet listed on the first market. Can you describe your market segments and tell us when you expect to get your 1st listed company on the first market?
We were established in September '95, and started operations March 28, 1996 - we're celebrating our 5th anniversary next month. In general, the capital market in Macedonia is still in its infant stage. It's a normal development stage. Its probably the second stage of development but it's still in infancy because we still have privatization going on, including ownership consolidation through Stock Exchange transactions. As main activities, more or less, in the past five years we served mainly to investors, actually shareholders. Some 200.000 shareholders in Macedonia were created with the privatization process who wanted to sell their shares through the organized market. Actually there was no privatization through the Stock Exchange. The post-privatization through the Stock Exchange started two years ago. We call that a secondary privatization.
The first privatization was started by a model, which was based on huge discounts for the existing employees - actually employee buy-out. There was no voucher system but it was a completely autonomous privatization process based on commercial case-by-case method of sale. The dominant model of privatization was employee buy-out and in some cases management buy-out.
The privatization continued with the Privatization Law in 1993 and it is still going on, there are at least 150-180 companies with still some residual shares of the Government. In most there are minority stakes, yet there are still few of them where the Government is the majority owner. So, the privatization is still going on. The Government at that time, following the 50 years self-management system, decided to implement a completely different model than the other countries, unlike the voucher system. Even the foreign agencies, banks that supported the restructuring in Republic of Macedonia supported this model in the early 90s as most suitable for the existing conditions. That's why we didn't have the Stock market established in the early 90s. It came later, once the first round of privatization in the commercial sector was finished.
In '95 the industry initiated the creation of the Stock Exchange. So banks at that time, insurance companies, savings houses initiated the establishment. We then had 6 months of preparations together with the UK Know-How Fund technical assistance; our exchange is based on the Anglo-Saxon model. The first year it was some sort of a monument to capitalism in Macedonia but we were moving and we are still developing in accordance with the existing capabilities of our economy. We are following the development and the success of structural reforms in market economy. So creation of the market environment was the crucial one for the development of capital market. Its still an ongoing process, the transition is still going on and we are following the success of the transition.
The current situation in Macedonia: high interest rates coupled with low savings. There is basic mistrust between clients and their banks. They prefer other ways of keeping their money.
That is an ongoing process, the targets are still not satisfactory. The inflation rate is relatively low - we had 2 years of low, inflation, GDP growth, with macro-economic stability, currency rate stability. These are generally favorable factors. On the other side we have structural reforms problems that are not very satisfactory. The banking sector is not fully restructured, so privatization is not completely finished - these as the negative factors, with negative impact over the market. That is why I'm saying the capital market is in some way a mirror of the national economy. We can not compare our market with the capital market in Polland, in Czech Republic, Hungary, Slovenia because the privatization has been performed in different ways than in these countries. For us the first and definitely the first goal is to finish the privatization. All residual shares of the Government should be sold on the market as soon as possible. Once the ownership restructuring is finished, followed by other reforms in the economic and monetary sectors, that is when the structural reforms will give results.
Did the Government privatize companies through the Stock Exchange?
We have a separate market segment of the Stock Exchange where the Government sells its residual shares. We have between 50 and 60 companies selling on the market. It is a sort of classical auction, selling all or none. They are selling the overall stakes of holding. They are selling shares on the unofficial market. Unfortunately so far we haven't had any official listing of a company where the Government is the dominant owner. The problem is a lack of listed companies - that is the main problem of our market. It is probably deeper than it looks like at the moment. There are a lot of factors that are beyond our power, mainly due to the structural reforms.
In general, we serve mainly to the shareholders that appeared in the privatization and to the Government. The Government started selling its residual shares in '98, continued into '99 and the last year was probably the most active year in this regard. They sold 54 companies, one of them is the biggest bank which accounted for almost 70% of the total revenues, but 53 companies in the portfolio of the Privatization Agency were sold through the Stock Exchange, which is a good result compared to '99 when we had sold only 2 companies. I hope that this year there will be more than 100 sold. I hope for more than 100, and there will be additional 20 - 50 companies that have to be sold as priority. I don't believe the privatization will be finished this year. I know how the dynamics is of the shares market.
The privatization of major public companies and the increasing presence of strategic foreign investors such as Matav in Telekomunikacii may contribute to boost the confidence of foreign businessmen. How significant do you expect those privatization's to impact on further FDI in the country?
From the point of view of the stock market, such approach is a disaster I can give you the example of the cement factory. They were sold to two strategic partners, Holderbank from Switzerland and Titan from Greece. One thousand six hundred shareholders sold their shares, and we did not have the company for trading on the official market anymore, though it was one of the most profitable companies. Now they have two owners, they are not publicly held company and they can not be listed.
It was the same with the Skopje brewery. The strategy of selling shares to strategic partners had negative impact to the creation of liquidity on the market. We lost the cement factory, we lost Skopje brewery, I think we lost Stopanska Banka(there are 3 strategic partners). We lost the biggest marble production factory in Prilep - a Greek investor bought the dominant part. Maybe the next stage of their development, once they decide to go public - they will do it. But so far we have lost many potential listed companies. Now we are targeting 5 companies. At the moment most of the preparations have been done to Alkaloid (pharmaceutical industry) and to Toplifikacija (heating systems) and I hope that these two companies will be prepared for listing at the end of June. I have a meeting in the Ministry of Finance, with MakTelekom representatives for listing 10% of the Government shares on the market. Listing of this portion of the Telekom will also boost the market and I hope it will happen in the next few months. That's going to have a great impact because so far we don't have portfolio investors, only strategic investors. From a short term point of view I'm not giving incentives for strategic investors - they are our enemies; that is why I find Alkaloid good for the stock market because it has almost 2000 shareholders. Toplifikacija has more than 400 shareholders - so they can fulfil the requirements for the official market.
Our official market has 2 segments: the first one has to fulfil some obligations regarding capital requirements, the number of shareholders, shares in public influence (at least 15 million DM capitalization, at least 200 shareholders, at least 25% in public hands). In the moment we have only 2 listed securities on the first market - on the first market we have Government bonds for the so-called frozen deposits; five hundred million Euros that are listed on the market. We inherited this 500 million US$ debt from former Yugoslavia, and the Government covered this debt to the citizens by issuing these bonds. This is the main, the most liquid security on the market. It contributes with almost 25% in the total turnover. In fact we have 75% turnover on the unofficial market and 25% on the official market. The other security on the official market, the second one is of a bank - Investbanka, which is very liquid share.
The second segment is the unofficial market of the Stock Exchange. Unlike the first market that companies are obliged to publish reports, financial and other information, audited reports and so on, for the unofficial market there is no obligation for disclosure. There is, no obligation for financial statement nor any other information to be disclose. We have 70 -80 unlisted securities, and an additional 60 offered by the Government. At the moment this is the most developed market. I hope that some of these companies will move to the official market very soon.
Are there plans to attract more foreign capital into Macedonia and boost the stock exchange?
Public awareness about the stock exchange is still low. I hope this year we'll have a more active public campaign. SEC is introducing a campaign next month. This year we're more active with a public educational program. Americans are here to support us - we have two years USAID technical assistance - they are helping us in promoting companies. | Things are moving well. We could not set up a stock exchange like it happened in Poland or Czech Republic. We go step by step. Seems like better solution here. In five years we've had no failures. Last year we had some 100 transactions per day and around 1,2 million US$ per day (two days trading per week) while this year 200 transaction per day this year due to the bonds which are very liquid.. For this market it's not bad. Things are moving faster.
Last year we had almost 33% block rates, 53% Government stakes sold (all or none) pure trading on the floor only 15%, so less then US$13 million. So, this is the capacity of the Macedonian economy, around US$300.000 per day. I'll be very happy if we have US$ 1 million per day in five years, on the floor excluding block rates. So that would be our goal. It will be a real success if this year we have 5 new listings. The Government has issued $US125 million bonds for covering the (contaminated) liabilities of Stopanska Banka. These are the liabilities taken off the balance sheet of Stopanska Banka and covered by the Government with US$ 125 million. They issued bonds and I hope these bonds will be listed. So if we have more companies and these bonds, it will be a success. More companies, better success, but don't expect a boom like in western economies.
The restructuring of the banking sector is one of the reasons why the stock market did not operate efficiently. If we had really restructured banking sector, the liquidity should be growing. Banks were under process of reaching capital adequacy requirement in the past five years. This is the last year of that process and before it is ended we can not expect more active banks on the stock market. They can operate on the market. We have at the moment 9 members from the brokerage companies, and an additional two that will become members next month - so - eleven, but as of 2002 all the brokerage companies will be owned by banks yet none of them were acting in the last 5 years as principals.
What about taxation and regulations? Are foreign investors and domestic investors treated on an equal basis?
This year the Government introduced some changes in the taxation. I hope it will give some incentives to listed companies. They are introducing 50% lower corporate tax for 3 years for listed companies (introduced 01/02/01) The corporate income tax is 15% but reducing it to 7,5% is still something. Another tax incentive introduced with the new Taxation Law was 5 years capital gain tax exemption. By the end of 2005 there is no taxation of capital gains
What are the main fiscal incentives for foreign investors looking at the Macedonian market?
These were only incentives for the Stock Exchange. There are others for foreign investors. In general there is no distinction between local and foreign investors, one can purchase shares, transfer them without any restrictions. Unfortunately we don't have portfolio investors and I know why they are not coming to this market: 1) it's very small 2) probably the region which is not very stable and 3) no listed companies so they want to see how it will work. We have only one Government bond while they need more bonds. These are steps that have to be done. The taxation issues are very favorable for the stock market and I hope they will attract new listings, and foreign portfolio investors.
Regional Cooperation?
We are aware that we are small market. We need to go in closer cooperation (direct linking) with the region, bilateral or multilateral basis. Today we started simulation of the new electronic system for trading (BEST Burse Electronic Systems of Trading). Our system is received as technical assistance, with the support of the Ljubljana Stock Exchange, through the Stability Pact i.e. the Slovenian Ministry for International Cooperation. We started it last October and very quickly we are now in preparation to offer the trading, first we'll start trading on the 5th anniversary (March 28) and we'll close the floor.
We don't yet have any direct links, and we are now in the process of setting up this cooperation. We hope we'll first do this as closer cooperation with Ljubljana Stock Exchange, once the system is operational next month. The cross border trading and cross membership is probably the most efficient way towards close cooperation in the region, between the Stock Exchanges. We have contacts with the Zagreb Stock Exchange, Bulgaria Stock Exchange, Istanbul Stock Exchange - we're very soon sign a Memorandum of Understanding, and the Athens Stock Exchange which offers some support to us. Definitely we are aware that we can not survive as such small market.
The regional exchange will increase with higher liquidity. We'll increase the transparency on the market, then develop the capital market in general. We'll attract new companies. That's why we're very keen on successfully finishing this cooperation. We are member of the Federation of Euro-Asian Stock Exchanges - by the end of June we'll have a direct link to the database of the regional markets within this regional cooperation. We would like to set up such cooperation with Ljubljana, Zagreb, Istanbul on a bilateral basis because too many exchanges gets very complicated. Adjustment of different Laws and regulations is very difficult. For instance, for the purpose of setting up such cooperation with Ljubljana we will have first have to change some in the local regulation and to initiate further cooperation.
In the Balkan region, the Ljubljana Stock Exchange is known as the most pro-active stock market (excluding Athens and Istanbul). They of course have interest for such cooperation. Once the system BEST is set up, their next step is allowing their brokers to trade on our platform and our brokers to trade on theirs.
The next step is to set up the Central Security Depository in Macedonia. It's a huge project, financed by the Norwegian Government. The new Securities Law introduces full security dematerialization. It means all the companies will have to transfer their share records into the Central Security Depository in dematerialized form. So it's very complicated but very important process for creation of a stable, transparent and secure market.
We realized that the Northern experiences (Danish, Swedish, Norway - all the region) with regard to the dematerialization are the most advanced in Europe. They approached us, and we started with our own Depository from the very beginning for listed companies, but our ZPP is under transformation and it is expected that one part of that Agency will be transformed into a Depository company. From the very beginning on behalf of the Stock Exchange they are settling the transactions of the listed securities so they are acting as depository for the bonds of the Government. They are probably to continue this dematerialization.
As a Macedonian businessman, how would you describe your country to our Forbes readers who are potential investors? How would you convince them that Macedonia is a safe, secure market?
Talking about the capital market: we are trying to create as secure as possible market, we don't make experiments, we only follow experience of the developed countries. So, it's a matter of time, nothing else. For instance, our regulations that are on our web-site are a copy of the London Stock Exchange rules and regulations. We are compatible with the EU investment directives.
Stock Exchanges are said to be the best investment that a country can make in its own future. Do you believe it is the case for Macedonia?
Without the creation of capital market, the Stock Exchange, we could not say that we created the market as a whole. Definitely, without a capital market there is no market economy. We have to set up a transparent and secure capital market, first secondary then primary, in order to give an incentive to the market. I know how it will happen but I don't know when.. Earlier as part of the European Integration process and succeeding in it, that's going to be a long and hard working process.
Tell us about your professional background. What do you enjoy about your job, and what do you see as your ultimate personal goal? Within five years how do you expect activities to move?
We are very happy that we served as transparent and secure market for trading for shareholders and their shares and the Government. Unfortunately we couldn't serve more companies for reasons I already stated.
What would be your main message to our readers?
Of course, come to Macedonia and invest on the capital
market on the Macedonian Stock Exchange. It doesn't
look so attractive yet, but there will be so much
interest in the near future. |
