Transcript The Stock Exchange of Mauritius: Driving the change

The Stock Exchange of Mauritius:
Driving the change process in Africa
Presented by
Sunil Benimadhu
Chief Executive
Stock Exchange of Mauritius
AMEDA, Maritim Hotel, Balaclava
May 23rd, 2008
Presentation Outline

Quantitative assessment of the evolution of the
SEM since 1989.
 Qualitative assessment: An overview of some key
milestone achievements.
 Constraints and challenges facing SEM & Capital
markets in Mauritius.
 Addressing the constraints and challenges:
Strategic priorities.
Presentation Outline (continued)

Scaling up the SEM and driving the change
process in Africa: Key initiatives
 The Mauritius Financial Services Centre 10 years
from now: Indicators of success
Quantitative Assessment of the SEM
Official and Development &
Enterprise Markets
1989
2007
No of Listed Companies
6
91
Total Turnover (Rs Million)
14
12,790
Market Capitalisation (Rs
Billion)
Market Cap/GDP (%)
SEMDEX
SEMTRI
1.4
2.5
223
96.50
100
100
1,852
4,869
SEM Evolution:Value-creation
in some of the Top Listed Companies
EVOLUTION OF TOP SIX COMPANIES
SECURITIES
The Mauritius Commercial Bank Ltd
Date of Listing
Market Cap at
on the SEM Listing ( Rs Million)
Market Cap Today as at
20.05.08( Rs Million)
Total Return as at
20.05.08 (% )
489
44,567
13,933
5-Jul-89
State Bank of Mauritius Ltd
30-Jun-95
3,137
30,070
2,234
New Mauritius Hotels Ltd
12-Jun-96
3,000
25,666
1,054
Sun Resorts Ltd
26-Jan-93
1,512
11,113
1,300
Rogers & Co. Ltd
27-Jun-90
807
10,031
6,495
Naiade Resorts Ltd
23-Nov-05
4,304
7,677
197
Note: * as at 20 MAY 2008
Broad equity market index performances among WFE members
Ten best performing broad market indexes last year, in local currency
terms
(source: WFE 2007 Market Highlights)
Exchange
% Change
2007 / 2006
Shenzhen Stock Exchange
162.8%
Philippine Stock Exchange
112.0%
3.
Shanghai Stock Exchange
96.7%
4.
Ljubljana Stock Exchange
78.1%
National Stock Exchange of India
62.5%
6.
Mauritius Stock Exchange
53.8%
7.
Jakarta Stock Exchange
52.1%
8.
Cairo & Alexandria Stock Exchanges
51.3%
9.
Bombay Stock Exchange
47.1%
Sao Paulo Stock Exchange
43.7%
1.
2.
5.
10.
Qualitative Assessment:
An overview of some milestone
achievements
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SEM is widely considered as a reference Exchange in Africa.
First Exchange in Sub-Saharan Africa to move to fully-automated
stock market infrastructure.
SEM & CDS have been very active and successful in exporting
services to Exchanges and financial services institutions in Africa.
CDS, in partnership with MIT, has automated the market
infrastructure in Kenya, Botswana, Ghana, Tanzania and Lusaka
(forthcoming)
SEM was ranked No 2 Exchange in Africa after the JSE by Africa
Investor in 2007, in terms of market infrastructure, modern & flexible
regulatory environment, and innovative initiatives to develop capital
markets.
Qualitative Assessment:
An overview of some milestone
achievements

SEM & JSE are currently the two Exchanges in
Africa running a second market for medium-sized
companies.
 SEM, JSE and Egypt are the Exchanges in Africa
to be full-fledged members of WFE.
 First Exchange in Africa to demutualise.
 SEM is one of the three Exchanges in Africa
included in the newly launched MSCI frontier
emerging markets Index.
What next?

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
The key question that we have now to answer is “What
next?”
How do we leverage on our strong positioning within the
region and Africa to scale up our activities and transform
the SEM to not only better support economic growth but
also to become overtime a regional powerhouse?
More importantly, how do we position the SEM to capture
a bigger share of the growing interest for African markets?
Before answering these critical questions, we need, to look
at the constraints, domestic challenges as well as the global
challenges facing the SEM.
Constraints and challenges facing SEM &
Capital markets in Mauritius.

Capital markets in Mauritius is currently
essentially a single-asset class market.
 Capital market activities intricately linked to
fortunes of local economy / local companies.
 Many of the flagship companies already listed on
SEM
 Scope for future listings of meaningful local
companies currently restricted to an additional
universe of about 40.
Constraints and challenges facing
SEM & Capital markets in Mauritius.

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Free-float of large companies have substantially increased
over the years (exceeding 80% in some cases), but those of
the smaller ones are still at 30% of market cap.
Banks remain a primary source of financing in the local
context.
Capital raising by listed companies have been fairly muted
in spite of strong market appetite for equity (controlling
shareholders not wishing dilution).
Investors are on the look for new products.
Constraints and challenges facing
SEM & Capital markets in Mauritius.

Absence of an active secondary market in government debt
has severely constrained the emergence of a corporate debt
market.
 Industry players are essentially local and have been
servicing local investors.
 Product innovation has been lagging behind.
 Penetration opportunities in the region, while very real,
remain largely untapped.
 Mauritian investors are growingly developing a global
investment perspective and trend will intensify with further
opening up of our economy.
Global Challenges facing the SEM
Regulation
Competitors
. MiFID and Reg NMS - best execution
. Pension privatisation
. Deregulation and re-regulation
. Shorter settlement cycles
. Basel II capital requirements
. New, non-traditional entrants
. Increasing price competition
. Continued product and service innovation
. Scale leverage
. Aging population/Growth of pensions
. Shifting customer base - hedge funds
and search for "alpha"
. Increasing technology literacy
. Increasing consumer power
Technology
. Algorithmic and black-box trading
. Application integration technologies
. Information access and transparency
. Alternative trading networks
Customers
Workforce
Globalisation / Consolidation
. New emerging markets
. Rapidly increasing global capital flows
. Cross-border consolidation
. Declining regulatory barriers
. Clearing and settling of foreign securities
. Competition for talent
. Changing workforce requirements
. Managing complexity
. Demand for technical skills
Addressing the Constraints & Challenges:
Strategic Priorities
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Review the current capital markets industry model to diversify services &
revenue streams.
Enter new asset classes and diversify product offerings by moving up in
the value-chain of products (derivatives, ETF’s, etc.).
Attract new foreign players to the market to scale up activities of the
industry and foster product innovation.
Increase our penetration and reach within the region so as to export
services to the region.
Share ensuing benefits of volume growth with stakeholders by bringing
transaction costs down significantly.
Improve operational excellence and trading performance.
Strive for the emergence of a well-integrated financial services sector in
Mauritius.
Implementation of Strategic Priorities:
Different options


Setting up of a regional platform in collaboration with
other exchanges of the Southern African region and trade
on a single trading platform a much wider universe of
products and asset-classes.
Capitalise on the competitive advantage of Mauritius
(totally open economy, no taxes on Dividends + no capital
gains tax, stable economy, efficient and flexible regulatory
framework, modern stock market technology) to position
the SEM as an obvious choice for the listing of African
Securities and underlying derivative products
Scaling up the SEM and driving the
change process: Key initiatives

Shift from a single asset-class Exchange into a multi-asset
class Exchange: A few concrete examples
- Introduce and trade derivatives contracts on African
products
- Work with African institutions to construct sectoral
indices and introduce derivatives trading on these sectoral
indices
- Introduce and trade ETF’s on selected African indices
- Leverage on the presence of Global Funds & of a number
of global companies to position Maurtitius as a Centre for
the listing of Funds and GDR’s.
Scaling up the SEM and driving the change
process into a regional powerhouse
•
•
•
•
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Position Mauritius as a research and Data Centre for African securities
/ companies.
Leverage on the market intelligence on African securities / companies
to develop specialized asset-management business focusing on African
companies.
Attract more foreign institutions to set up business in Mauritius and
use Mauritius to service a much wider regional client/investor pool.
Enter into agreements with other Exchanges to trade ETF’s & other
derivative products to capture the arbitrage opportunities that may arise
due to Mauritius’ specific time zone location.
Enhance SEM’s visibility at the international level.
The Mauritius Financial Services Centre
10 years from now: Indicators of success.
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Variety of product offerings and services.
A properly integrated not artificially segmented centre, servicing
Mauritius as well as the region.
Presence of global providers of financial services.
Operating as a fully open centre where all related services (including
legal)are open to foreigners.
World-class financial market infrastructure and systems.
Quality human resource pool which is transferable to other efficient
financial centres.
Improved market liquidity, depth and breadth.
The Mauritius Financial Services Centre
(10 years later)
Other
Financial
Services
Capital
Markets
Banking
Sector
Global
Business
Sector
Insurance
Sector
Servicing
Africa and
the rest of
the world