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TIRANA (Albania), April 5 (SeeNews) - The nascent private Albanian Securities Exchange (ALSE) hopes that an initial public offering of shares of state-owned power distributor OSHEE will be possible this year if there is political will and government support, ALSE head, Artan Gjergji, told SeeNews.
Albania's Prime Minister Edi Rama said at a meeting with EU officials last month that the government intends to float through an initial public offering (IPO) the shares of OSHEE by the end of 2018.
"I guess that Prime Minister Edi Rama’s statement is part of the strategy in the energy sector. Let’s hope that the government is thinking seriously about this," Gjergji, executive director of ALSE, said in an interview with SeeNews earlier this week, adding that the process of preparing an IPO takes at list six months in developed markets.
Gjergji said he was sure the listing of OSHEE can be done this year provided there is a genuine political commitment and added that by listing a state-owned company, the government will set the first example of financial transparency and will send a good message to the market about its will to formalize the domestic economy.
"It’s not a problem if they are going to list it in November, December or in January next year. The important thing is to do the process in the right way in order to build trust in the domestic financial market."
ALSE was founded by Tirana-headquartered Credins Bank and American Bank of Investment (ABI Bank) with 42.5% shareholding interest each and AK Invest, one of the biggest non-banking financial institutions in Albania, with 15%. Credins Bank and ABI Bank hold 0.13% and 2.85% of the total assets of Albania's banking system, respectively.
The Albanian Financial Supervisory Authority (AFSA) licensed ALSE in July 2017 as the first private securities exchange in the country. Since the start of operations in February 2018 only government securities have been traded on the exchange but Gjergji explained that ALSE had been granted a full operating licence, meaning that once the full institutional infrastructure is in place, ALSE can operate as an exchange for the full range of securities, including government bonds, corporate bonds and company shares.
"The licence given to ALSE by AFSA has one condition. They made it obligatory to trade only government securities in the first year because AFSA wants to build trust in the market. This is why they want to go slowly but in a sustainable way," Gjergji said.
He added that the one-year period is not carved in stone, though.
"If AFSA is convinced that ALSE is performing well, and on the other side, the government has some plans or businesses have some plans to be listed in the near future, I am pretty sure they will revise the one-year limit."
Gjergji pointed out that ALSE is offering a viable alternative of financing to bank loans to companies seeking to raise capital in order to expand their activities.
"Moreover, after the 2008 crisis, the conditions set by the European Central Bank and the Bank of Albania put banks in a conservative position in terms of lending to businesses," Gjergji explained and added that Albanian companies are part of a growing economy and are always in need of fresh capital but the banking sector cannot fully satisfy that need.
"ALSE is ready to list a company but the financial infrastructure and the process are not easy because it is the first time in the history of the Albanian economy that a company will start raising capital through the stock exchange," Gjergji commented.
Gjergji also said that the plans of the government to list a state-owned company is more than welcome by ALSE but the new exchange is also ready to start listing private companies as well. He said that ALSE has one of the lowest listing requirements in terms of free float in the region, of 10%, while other stock exchanges in the region start with 15%, 20%, or 25%.
"ALSE listing criteria are really accommodating for the whole structure of Albanian businesses," Gjergji opined.
"I am not talking only about OSHEE, as there are also six or seven state-owned companies which can be potentially listed on the ALSE, giving the public the right to be shareholder. This is a good example commonly used in the eastern bloc of former communist countries starting from Russia, Macedonia, Montenegro, Croatia or Poland, etc."
Gjergji went on to explain that ALSE organizes the marketplace in sub-segments in order to create opportunities for different companies with different requirements to fit into ALSE's criteria and raise capital.
ALSE is using the same electronic trading systems used by Slovenia's Ljubljana Stock Exchange until several years ago. The same system is used also in Montenegro, Macedonia and the Bosnian bourses in Banja Luka and Sarajevo, Gjergji said.
Gjergji said that ALSE is open to regional cooperation, adding that it already has good relations with experts and CEOs of the stock exchanges in the region of Southeast Europe.
"We had a conference in January and invited six or seven CEOs from the stock exchanges in the region to share their experience with us. On the other side, we have two or three regional experts helping ALSE in its daily operations," Gjergji added.
He also said that a future goal of ALSE will be to become part of a regional securities trading platform such as the SEE Link launched by the stock exchanges of Bulgaria, Macedonia and Croatia and supported by the European Bank for Reconstruction and Development. However, ALSE needs to build trust at home first.
"Talking about the SEE Link platform, we are OK with that, but we cannot forget that in order to become part of a regional stock exchange we need to have a history in the domestic market first. This platform puts all the companies and brokers in the same place, and facilitates the integration and trading among Balkan countries but before going there, we need to have a market, listed companies, to educate our public and build trust."
Building trust among financial professionals as well as the general public will be a challenge for ALSE, considering the demise of state-owned Tirana Stock Exchange and the memories of the pyramid financial schemes of the 1990s in Albania.
The Tirana Stock Exchange had been set up as a department of Bank of Albania with the aim to start operating separately after a certain period of time. The core activity of the bourse included the organization of a primary and secondary market for short-term government securities. The Tirana Stock Exchange split from the central bank in July 2002 to become an independent state-owned company. The bourse had obtained a licence in 2003 and renewed it in 2005 but it never became a stock exchange proper and a reliable partner of Albanian businesses, remaining just a legal concept. For this reason, AFSA decided to suspend the licence of Tirana Stock Exchange in April 2014.
"The Tirana Stock Exchange never had the chance to list and quote securities, it never had any financial support, despite the fact that their main shareholder was the Ministry of Finance. ALSE has this kind of support and has one of the most developed electronic trading systems in the region," said the executive director of ALSE.
Gjergji explained that ALSE had sprung up as a joint initiative of financial professionals in Albania, who had come up with the idea of setting up an electronic trading platform as an alternative to the Tirana Stock Exchange.
"Knowing the potential of supply and demand for securities and capital in the Albanian economy, we thought that a mechanism of matching supply with demand would be necessary for the market. Therefore, we prepared a project, and after that, we tried to raise capital in order to have financial institutions supporting our project. Credins Bank decided to finance our project in 2014, and after that, we had the support of AK Invest and ABI Bank, who joined the initiative in 2016."
Restoring the trust of retail investors in financial instruments will be particularly challenging in Albania where memories of the collapse of the Ponzi schemes some 20 years ago are still rife. Lured by preposterously high interest rates on deposits, thousands of Albanians rushed to put their money into financial pyramid schemes that sprang up in the country following the collapse of Communism. Predictably, the get-rich-quick schemes swiftly collapsed in 1996-1997, depriving people of their savings and stirring social unrest that brought down the government.