Cyprus Stock Exchange authorities are trying to pull the institution out of a two-decade stagnation in order to attract new companies and lift Cyprus shares along with it.
While bellwether stocks like Bank of Cyprus, have been struggling the CSE has difficulty in drawing in companies which will add value to the market and reverse its poor image.
The Nicosia bourse hasn’t been able to move forward since a stock market bubble spectacularly burst in 2000 with many Cypriots losing their savings, 13 years later Cyprus was hit with a haircut on bank deposits to fend off bankruptcy.
Nikos Tripatsas, Acting General Manager of the Cyprus Stock Exchange told the Financial Mirror that overturning the negative image of the CSE is the main priority of the new board.
Tripatsas said the board is focusing on building markets in innovation fields such as technology and energy while working closely with the Fund Industry stakeholders to attract more Investment Funds to the island.
To understand the current image of the CSE look no further than its marque stock – the Bank of Cyprus.
Indicatively, BoC, after its dual listing with the London stock exchange In January 2017 has seen its share take a beating, loosing almost half (49%) of its value since listing on the LSE at €3.35, closing at €1.71 on Friday.
Brokers see a connection between the downfall of Bank of Cyprus share with the overall image of the CSE.
Broker Christos Akkelides, CEO of Global Capital Securities & Financial Services, said that the lack of interest in BoC shares may not be irrelevant to the current attractiveness of the country’s stock exchange.
“For an investor wanting to formulate a diversified portfolio, the CSE is far from being an attractive option. Investors prefer to look to other stock exchanges which offer more investment choices and opportunities for creating a more balanced portfolio,” said Akkelides.
He did, however, stress that the lack of interest does not stem solely from the image investors have of the CSE, but from the broader financial environment in which the island’s banking system has found itself in.
“High provisions imposed on banks and the ever-changing definition of what is a considered an NPL, are blurring the banks’ outlook and their future prospects and possible profits. Investors do not have a clear image of when a bank like BoC will be in a position to distribute dividends,” said Akkelides.
He added that events such as the haircut on deposits in 2013, coupled with the panic surrounding the takeover of the Co-op bank have taken their toll on investor interest in shares in the island’s banking institutions.
“Definitely a face-lift of the CSE would help these shares to take-off again. But firstly, the stock exchange needs to find its role in the region,” explained Akkelides.
Acknowledging steps have been made in the right direction such as the creation of the Emerging Companies Market, Akkelides said that Cyprus and its stock exchange should find ways to utilize the island’s competitive advantages presented by the legal framework and level of services offered.
“Applying these advantages, the CSE could also tap into areas with growth prospects such as the Investment Funds market”.
No dynamic
A fund manager of a CIFA-member firm, also supported that the CSE needs to identify its role in the region and will need to be affiliated with larger stock exchanges and indices.
He said that currently, the CSE does not have a dynamic that can reverse the grim picture.
“Cypriot stocks are currently not included in big indices, neither is Cyprus included in any of the major indices for developed or frontier countries,” said a trader who didn’t want to be named.
The broker did acknowledge that stocks of banking institutions such as BOC are faced with serious challenges such as their high NPEs.
He said that if the Cyprus stock exchange is not affiliated with a bigger SE, then its small size will continue to be an obstacle for attracting institutional investors.
“Institutional investors are sceptical about investing in stocks of institutions such as Cyprus banking institutions, as the majority of these stocks are not negotiated on big stock exchange markets.”
Furthermore, the broker said that if the CSE does undergo a facelift it will not be able to regain the trust of local investors, and companies already listed with the CSE may choose to delist leading people to lose further interest, making it a vicious cycle.
Veteran broker Louis Clappas, CEO of One Plus Capital, sees no connection between the falling BoC share and the current state of the CSE.
Clappas said that BoC’s decision to list also with the London Stock Exchange was a mistake as it offered many shareholders, amongst them institutional investors, a bigger market for them to cash in their stocks.
The dual listing took place at a time when the company was still trying to get its bearings, said Clappas.
“BoC’s prospects are still not clear as the never-ending NPL issue coupled with uncertainty surrounding the bank’s profitability and subsequently whether the bank will be in a position to hand out dividends in the near future cloud investor’s visibility,” said Clappas.
The honorary President of the CSE Members Association added that BoC’s move to issue a €220 mln bond with an interest rate of 12.5%, targeted at specific shareholders “created clouds over transparency procedures and practices followed by the banks, decreasing the public’s interest for the bank’s shares”.
On what needs to be done for the CSE to get back on the horse, Clappas said that a bond market should be created, where the very-attractive-to-investors, six-year government bonds could be negotiated.
“Furthermore, if for example, companies like OPAP issue bonds which attract great interest. If a bond market was set up in the CSE, they would certainly do well, contributing at the same time to the growth of the Stock Exchange.”
Clappas referred to potential growth with the inclusion of currently quasi-state corporations after a possible privatisation process is completed.
“If the organisations are healthy at that time and enter the SE with a good IPO, then they will definitely attract the interest of investors.”
“For the moment, the CSE should concentrate on bringing in companies such as the firm which is operating the Casino and create a market for companies active in the energy sector,” said Clappas.
Confirming CSE’s intentions on creating a market for energy companies, Tripatsas said the board is working on the idea.
“Currently the CSE is handling the emissions allowance of the Republic and plans to invest in the Hellenic Energy Exchange which has been founded as part of the EU’s target model to create a single energy market and is expected to go live in mid-2019,” he said.
Tripatsas said that the CSE has plans to set up a similar project once the energy market is liberalised.
He added the CSE is working towards bringing in the company running the casino and would like to see the companies running the island’s marinas enlist on the stock exchange.
The CSE is also working on improving the regulatory framework so as to be able to list Investment Funds.
