26 April - 2 May 2001

Planned IPOs put on hold

by Ivan Brincat, David Kelleher

The current volatility on the Malta Stock Exchange and the level of uncertainty in the market is forcing many companies who are considering going public to put their plans on hold.
Sources in the financial industry told The Malta Business Weekly that a number of companies which were considering floating on the Malta Stock Exchange have delayed their plans until they see a possible turnaround in the local market.
With share prices going down rather than up, company valuation will suffer.
“At the current market prices, these companies would have to value their companies at a much lower figure than originally inten-ded and therefore possibly lose out on million,” the sources said.
Another major problem facing companies is the lack of cash available and the difficulties posed by the two major banks when it comes to borrowing. This has forced many to try an alternative route and seek a listing on the Stock Exchange to raise much needed financing.
However, companies are reluctant to make a move at this moment in time because of the prices they would have to sell at are far below the highest valuation they received a few months ago.
“In recent years, companies have used IPOs or issued bonds as a means of attracting alternative financing rather than going to the banks. But there is a limit to the liquidity in the markets and the government stock issue has decreased the availability of cash available,” the sources said.
“Some companies are facing a dilemma because the banks are being strict on payments and the Malta Stock Exchange, which was seen as the alternative, is not performing well,” the sources said.
The markets received a further knock yesterday following the half-yearly results for Bank of Valletta. The BOV Group reported a drop of Lm4.1m (37 per cent) in pre-tax profit over the same corresponding period last year, to Lm6.8m.
Earnings per share fell to 11c1 (Mar-2000 18c0). The decrease in profits may be attributable, in major part, to the substantial fall in gains on the bank’s investment portfolio as a result of the prevailing stock market conditions.
The Group’s chairman, Joseph F.X. Zahra, considers the group profitability to be satisfactory, given the current economic situation and international and national market volatility.
However, investors and business executives are not seeing the current bearish market as satisfactory. The share prices of a number of equities have been dropping to levels that are worrying, to say the least.
Even small investors are wondering where their money has gone to and future IPOs could suffer in this regards because small investors may be unwilling to part with their hard-earned cash, especially if they have already experienced the volatility of the market, financial sources told The Malta Business Weekly.
BOV’s profit announcement brought in the sellers this week, and around 17,000 shares were placed on the market from Lm3.90 down to a best offer of Lm3.83. BOV shares ended yesterday’s session 1.54 per cent in the negative (from last Friday), down to Lm3.84.
HSBC saw its share price fall 4c from last week’s close, to Lm5.21. Middle Sea Insurance, on the other hand, remained unchanged on last week.
Simonds Farsons Cisk continued to be the best performing equity over the past 52 weeks at Lm0.90.
According to the Hogg Report (page 31), the TMT sector on the Malta Stock Exchange remained further subdued, with both Maltacom and Datatrak hitting new 52-week lows. Both lows were registered during yesterday’s session. Maltacom’s trade only amounted to 410 shares changing hands at Lm1.94,9.
Datatrak Holdings’ new low of Lm0.79 is 29 per cent away from its Lm1.11 high.
Investors are still punishing this equity, perhaps wishing to at least secure part of their original investment, as the market has been left in the dark as to the developments with regards to the company’s expansion into foreign markets. Since last week, the equity fell a further 8.8 per cent.
Meanwhile, the government’s plans for privatisation are also at the back of the minds of companies which are considering an IPO.
So far, the government has not come up with a plan detailing which companies will be partially listed on the Stock Exchange. However, Malta International Airport and MOBC are high on the list. With regards to the latter, the government had made an international call for applications together with Kordin Grain Terminal and the Malta Freeport.