31 May 2016
With traditional lending constrained by lower hydrocarbons receipts, public authorities are redoubling their efforts to develop Algeria's capital markets.
By encouraging listings on the country's equity and debt markets, officials are looking to relieve pressure on the national Treasury and create new investment opportunities for financial institutions.
"The Treasury and the state no longer possess the budgetary means to finance development projects at the same level as in recent years, which has resulted in a redistribution of funding channels and underscoring the need to develop financial markets," Abdelhakim Berrah, president of the Commission for the Organisation and Oversight of the Stock Market (Commission de Surveillance des Opérations de Bourse, COSOB), told OBG.
Given the small size of the exchange and relatively low number of investors, liquidity has historically been an obstacle to development. However, officials aim to combat this through a combination of privatisation of state-owned companies and private sector listings.Room for growth
Operational since 1999, the Bourse d'Alger, with only five listed equities, has considerable potential. In recent months, momentum has picked up, with the bourse's market capitalisation rising by 8% in 2015 to finish the year at AD16bn (€129.2m), up from AD14.8bn (€119.5m) at the close of 2014.
However, combined market cap for the exchange was equivalent to less than 1% of GDP in 2014, compared to 62.7% for Morocco and 21.7% for Tunisia, suggesting there is significant scope for growth.
Last month, Biopharm, a private Algerian pharmaceuticals company, launched an initial public offering (IPO), raising $6m in its first week. Stakeholders pointed to Biopharm's financial results and its focus on the health sector - expected to grow as the Algerian population ages - as offering potential to attract further investment.
In addition to Biopharm, other listed equities include majority state-owned pharma manufacturer SAIDAL, partially state-owned hotel operator Entreprise de Gestion Hôtelière El Aurassi and privately owned Alliance Assurances and Nouvelle Conserverie Algérienne de Rouiba, a food and beverage producer.
"At the institutional level, it is important to develop collective savings instruments that allow investors to invest in a diversified portfolio of securities, which reduces risk and increases liquidity in the market," Mohammed Khelfaoui, general manager at Tell Markets, told OBG. "A whole industry of asset management for third parties must also be created - it is important to encourage insurance companies and pension funds to invest in shares. This will bring more capital to Algerian companies."Partial privatisation
Considering the scale and scope of state-owned companies in Algeria, public entities are expected to play a central role in the government's efforts to boost liquidity on the exchange, attract new investors and energise trading of existing shares.
According to the 2016 Finance Law, published at the end of last year, state companies are permitted to float up to 66% of their shares, though ownership remains limited to national resident shareholders.
There has already been some action on this front. Cement company Société des Ciments Ain El Kebira (SCAEK) launched an IPO in mid-May, which is scheduled to close on June 13.
The company is looking to increase its capital by 33% through the sale of close to 12,000 new shares, to be divided among institutional investors (37%), such as banks and insurance companies; individual investors (37%); legal entities (25%); and company employees (1%).
Between Biopharm and SCAEK, the market cap of Bourse d'Alger is expected to increase six-fold to nearly $1bn by the end of June, according to COSOB.
Four additional public companies are also expected to list in the second half of the year, bringing the number of listed companies to 10 and the bourse's combined market cap to $10bn, local media reported.
SCAEK's parent company, Groupe Public des Ciments d'Algérie, plans to list another two subsidiaries, while the bank Crédit Populaire Algérien, Cosider Carrières and Compagnie Algérienne d'Assurance et de Réassurance are also expected to float by the end of this year, according to press reports.Incentivising IPOs
Despite recent movements, the expansion of Algeria's exchange faces several challenges due to a lack awareness of equity investments, and in particular the benefits to companies of listing.
To counter this, COSOB is stepping outside its conventional regulatory role to promote an understanding of how the stock market operates, as well as a more active investment culture.
Algeria is also making use of conventional regulatory avenues to encourage listing. The 2015 Finance Law maintained a measure introduced the previous year granting tax breaks to companies in proportion to the percentage of capital they list on the market, and another expanding tax breaks on capital gains to encourage investors.Government bonds
The country's debt market is also seeing movement, with the government issuing its first local bonds in years in April in a bid to secure alternative sources of finance after a drop in energy revenues, which traditionally account for around 60% of budget spending. Government debt issuances had seen a period of notable activity between 2003 and 2010, and this most recent issue marks a reinvigoration of the country's bond market.
The issues will have a maturity of three years with a coupon rate of 5% or five years at 5.75%, according to media reports. As of late April, the issues were fully subscribed at AD20bn (€161.9m).
The government is also considering issuing bonds to help fund targeted investments in the energy sector, according to Salah Khebri, minister of energy.
"We will resort to bond issues," he told local media last month. "They will be exclusively devoted to productive investments in the sector of energy," he added, citing state energy companies Sonelgaz and Sonatrach.
The state has pledged to finance 75% of these projects, with the subsidiaries of Sonelgaz and Sonatrach to cover the remaining 25%.
© Oxford Business Group 2016