Darin Pace

Head of Capital Markets, Calamatta Cuschieri

The Capital Markets Boom

Monday 04th February 2019

Companies require capital to function and to grow and therefore, it is essential for them to have access to an efficient market which they can tap in to whenever funding is required. In very basic terms, the primary role of capital markets is to match the needs of organisations seeking funding with the needs of investors that have excess supply of capital ready to invest.

Traditionally the banking system has been used for the funding requirements of companies and organisations. However capital markets have been growing steadily over the years. Bank funding and capital markets are not outright substitutes for each other, but are increasingly being seen as complementary to each other. The chances are that as a company continues to grow, it would require funding from diverse sources featuring both capital market instruments as well as bank facilities.

In the case of bonds, the interest rate companies pay bond investors is often competitive, compared to the interest rate they would be required to pay to obtain a bank loan. Moreover, some financing applications may not be attractive for banks from a return point of view, given the amount of capital they are required to retain in order to offer financing to certain sectors or client profiles.

Some banks are generally inclined to lend money for the acquisition of hard assets rather than operations. Another limiting factor for banks may be that they have reached exposure thresholds in particular economic sectors or organisations, as the latter continue to grow and scale up. Such companies would still require additional capital to continue to expand, flourish and generate additional wealth.

In Malta, the investment community is mainly familiar with the main market of the Malta Stock Exchange (MSE), and this is where Malta’s largest organisations list and trade their debt or equities. On the other hand, the Prospects Market, which is a multilateral-trading facility (MTF) operated by the MSE offers a platform to assist small and medium sized enterprises with their financing needs.

Various issuers from a number of sectors of the Maltese economy have tapped into the local capital markets over the last years and have been successful in raising capital through IPO, bond and prospects issues.

From an issuer point of view, one needs to gauge market conditions. For instance, issuers are benefiting from the low interest rate market environment and locking in attractive coupon rates.

It is important that organisations wanting to raise capital understand the necessary requirements and processes involved. For smaller companies, this exercise might even mean a complete change in mind-set.

The future is bright for the local capital markets sector. Likewise, capital markets will play an increasingly important role globally in providing everything from financing the world’s most innovative companies to generating the investment returns needed to support an ageing population in the developed world.

On a final note, the role of corporate advisors is key to advise the issuer on a number of matters such as the drafting and submission of all required documents, ensuring that the applicant has full corporate governance in place and advising on the financial sustainability forecasts.

For more information visit www.cc.com.mt/capitalmarkets or email capitalmarkets@cc.com.mt