The Cyprus Stock Exchange wants to shed its loser image by improving its game to support the economy ‘the way it should be doing’ with privatisation and creating new markets.
The CSE board feels it’s time for the institution to make the leap towards privatisation, hoping that it will be pulled out of a two-decade stagnation to attract new companies, lifting Cyprus shares and the economy along with it.
Nicosia’s bourse hasn’t been able to move forward since the stock market crash in 2000 when thousands of Cypriots lost their savings; 13 years later, Cyprus was hit with a haircut on bank deposits to fend-off bankruptcy.
CSE Chairman Marinos Christodoulides told the Financial Mirror, the Nicosia bourse is soon to be privatised, following the results of a study, commissioned by the Ministry of Finance. The study showed that the future of the Cyprus bourse lies with privatisation.
Christodoulides said the plan is for the majority of the bourse’s stocks to be sold to a larger European stock market which will essentially take over the CSE operations.
“A bigger European stock exchange will bring with its know-how, its technological solutions and of course will open up gateways to bigger markets.”
It is the board’s view that privatisation of the institution is imperative so that the strategic roadmap, drafted in the study, be implemented as soon as possible.
“However, this is a political decision that will need to be taken by the cabinet,” said Christodoulides.
He said the CSE is not putting all its eggs in one basket with the privatisation project, as it has decided to set up a corporate bond market, giving businesses domiciled in Cyprus an alternative way to raise funds.
Christodoulides said that with the implementation of a corporate bond market, the role and the turnover of the stock market will also increase, although that is not the bourse’s primary goal.
“Currently, it is no secret, that businesses are dependent solely on borrowing from banks, as there is no alternative.
We want to fill this gap and take on the role that a stock exchange market should play. Helping the economy grow by offering businesses the tools to raise the necessary funds.”
He added that the special defence levy imposed on corporate bond yields has been reduced from 30% to 3%, the same as government bonds.
This is expected to give the corporate bond market a push. Previously, companies did not issue bonds in the Cypriot market as they knew they would not be able to offer an attractive yield due to the levy.
Corporate Bonds
Also talking to the Financial Mirror, Nikos Tripatsas, acting General Manager of the Cyprus Stock Exchange, said that the corporate bond market is expected to be an attractive investment product, especially at a time when returns on deposits are close to zero, while large deposits in some Cypriot banks carry a negative interest rate.
While bellwether stocks like Bank of Cyprus have been struggling, the CSE has also had difficulties in attracting companies which will add value to the market and reverse its poor image.
Tripatsas said the board has been informed by several companies that they would be interested in such a venture, once the corporate bond market is set up.
“The corporate bond market is a great tool for companies looking to raise funds. It was, after all, one of the main tools used by companies in Greece to raise funds during the crisis years.”
He added the board is aware that the CSE is a small market but sees great potential for the corporate bond market, noting, however, that the future of the market will depend on the magnitude of companies it will be able to attract.
“What the Cyprus Stock Exchange needs at this stage is support from the state. The state should acknowledge the stock market as a key institution for the growth of the economy and give the necessary support and incentives both to the institution and to investors,” said Tripatsas.
Christodoulides said the CSE has revenues from services it allocates to Ministries and government agencies, such as services to the Ministry of Finance for the public debt (such as interest payment, debt repayment, the process of introducing new debt securities).
Services to the Ministry of Agriculture include the auction of pollutant rights, while revenues are expected from the June 2020 opening of the Greek Stock Exchange, in which the CSE has a 10% share.
According to Christodoulides, the CSE's 2020 budget is marginally surplus, with revenue of €5.9 mln and spending of €5.87 mln.
Veteran broker Alkis Loizides argues the CSE is in desperate need of a makeover but does not see privatization as being enough to regain the loss of trust from investors, both small and institutional.
“The institution has taken more than one hit over the course of the past few years, with the public and institutional investors now looking upon the Cyprus Stock Exchange as a timebomb waiting to blow up in their faces,” said Loizides.
He reminded that the country’s stock exchange has also suffered damage due to the collapse of the banking system with the haircut on deposits and bank bonds.
Loizides said for the CSE corporate bond market to take-off, some well-governed companies need to register their bonds with the institution.
“Companies which show their respect towards investors and personnel in practice, rather than in words. Companies who pay out their dividends and their coupons as expected from a well-governed company.”
He added: “Now is the right moment for the CSE and companies to do so. With interest on deposits being at an all-time low, corporate bonds can be an attractive and relatively safe investment.”
