LIQUID FLOWS

Mozambique 2016 | FINANCE | REVIEW: CAPITAL MARKETS

Though reports of the government's restructuring of the country's so-called 'Tuna Bond' occupied most of the financial headlines in 2015, market indicators reflected a year of much-needed growth in the country's capital markets.

At the heart of Mozambique's capital markets is its platform for the primary exchange of public and private sector securities, the Maputo Stock Exchange, known locally as the Bolsa de Valores de Moçambique (BVM). After initial government legislation outlining the regulation of the capital markets was instituted in 1998, the Mozambique Stock Exchange was incorporated in 1999 and began operating with the support of the World Bank and the Lisbon Stock Exchange in October of that year. Although initial proposals for the exchange were to require a capital base of $3 million for any listing entities, that requirement was eventually lowered to just $1.5 million to accommodate for the country's relatively tenuous private sector at the time. Trading of securities listed on the Mozambique Stock Exchange can be carried out in either the Official Listed Market for large cap companies, or on the Secondary Market for SMEs. The BVM is also responsible for the management of the Central Securities Depository (CSD), but unlike many stock exchanges in both developed and frontier markets, the BVM is a public institution, managed under the Ministry of Finance and monitored by the Bank of Mozambique, which is responsible for surveillance and supervision of the country's secondary securities markets as well. One major advantage for ownership investors in Mozambique's capital markets is the 50% IRPC/IRPS Income Tax exemption for equity shares traded on the BVM. Despite some of the most promising growth rates exhibited by any country in the world over the last decade, an ongoing impediment to deepening Mozambique's primary capital market has been and remains to this day the scarcity of prospective security listings and the lack of rigorous reporting standards for audited financial statements in the private sector. There has for many years been a push among government officials to reallocate its holdings in private-sector entities to the general population of individual and institutional investors in order to both diversify the ownership structures of these firms and increase the working capital available to finance its deficit spending initiatives.

Most market indicators for the Mozambique Stock Exchange reflected a generally encouraging performance of the country's capital markets in 2015, with the consolidated market cap of the BVM reaching MZN55.218 billion ($1.222 billion) at end-2015, a 30.8% YoY increase from the MZN42.215 billion market cap recorded and end-2014, but an 8.05% decline in the US dollar market cap during the same period. The discrepancy between the BVM's YoY change in market cap is a direct reflection of the country's ongoing struggle with the depreciation of the metical, which according to the Central Bank of Mozambique declined by 42.22% against the US dollar during 2015, trading at MZN45.17 to the dollar at end-2015 compared to MZN31.76 to the dollar at end-2014. Despite the volatility of the real value of the exchange's market cap on the forex market, the consolidated market capitalization of the exchange at end-2015 represented nearly 8% of the country's 2015 total GDP. The volume traded on the BVM reached $329 million in 2015, a 126.90% YoY increase from the $145 million traded on the exchange during 2014, while turnover, a measure of liquidity in the country's capital markets, reached 26.90% in 2015, a much welcomed 146.79% YoY increase from the 10.90% recorded during 2014. Following the listing of 15 new publicly traded securities and the redemption of 12 previously listed securities, the total number of securities listed on the exchange at end-2015 reached 46, a 6.98% YoY increase from the 43 securities listed at end-2014, marking a significant improvement in what has historically been a major constraint to further development of Mozambique's capital markets.

DEBT SECURITIES

There were 21 government bonds listed on the BVM at end-2015, a 16.7% increase from the 18 listed at end-2014 following the listing of six new government debt securities and the redemption of three previously listed government bonds. The consolidated market cap of these 21 government bond issues listed on the exchange stood at a $498.011 million at the end of 2015. The number of securitized commercial papers listed on the BVM fell by 50% during 2015 to just three at end-2015, down from the six commercial papers traded on the exchange at end-2014 following the listing of four new commercial paper securities and the redemption of seven previously listed short-term debt securities. The market cap of these three short-term commercial papers was $15.663 million at end-2015. While there were no public fund securities listed on the BVM at end-2014, the four-year maturity 'Títulos Reembolso 2015' with its 81,707,520 outstanding shares at 7.375% interest had a total market cap of $175.462 million at end-2015.

CORPORATE BONDS

The bond market experienced a significant upheaval during 2015, with the federal government subsuming Mozambique Tuna Company's $850 million so-called 'Tuna bond' through a newly issued $586 million government bond and extending its maturity date to 2023, resulting in an increase in the interest rate demanded by bondholders to 10.5% as a part of the debt restructuring arrangement. Despite the disappointing failure of the tuna bond and its subsequent impact on investor confidence, already weakened by Moody's downgrading its rating of Mozambique during 2015, the number of corporate bonds listed on the Mozambique Stock Exchange at end-2015 stood at 17, a 13.3% increase from the 15 securitized corporate bonds listed at end-2014 following the listing of four new corporate bonds during 2015 and the redemption of two previously listed private-sector medium and long-term debt instruments. The market cap of the 17 corporate bonds listed on the exchange stood at $107.061 million at end-2015.

PRIVATE SECTOR EQUITY SHARES

The total market cap of private sector companies' equity shares stood at $426.246 million at end-2015. The number of private sector companies with traded equity shares listed on the Mozambique Stock Exchange at end-2015 remained at just four, another major impediment to further deepening of investment avenues in the country's capital markets. These four publicly listed companies were Cervejas de Moçambique (CDM), which produces and distributes alcoholic beverages, Companhia Moçambicana de Hidrocarbonetos, SA (CMH), a subsidiary of Empresa Nacional de Hidrocarbonetos EP that works in the hydrocarbon sector and is the current operator of Mozambique's Pande and Temane gas fields, Engenharia e Construção, SA (CETA), a large industrial conglomerate, and Empresa Moçambicana de Seguros, E.E. (EMOSE), a provider of insurance products and services. The largest company listed on the exchange in terms of the market capitalization of its shares outstanding was CDM, with its 121,770,258 shares outstanding at end-2015 registering a market cap of $363.936. This was followed by CETA, which had 17,500,000 shares outstanding at end-2015 recording a market capitalization of $46.491 million.

There were 593,412 shares of CMH outstanding at end-2015 with a listed market cap of $8.868 million, while EMOSE was the smallest of the four publicly listed companies on the Mozambique Stock Exchange, with its 15,7000,000 shares outstanding at end-2015 valuated at a market cap of $6.952 million.

Mozambique's Central Securities Depository was established in 2006 as a supplement to the BVM to monitor the composition of the country's main capital market trading platform. As of end-2015, the CSD had 10,760 registered investors, 16 financing intermediaries, 44 registered issuers, and 68 registered securities, including eight currently unlisted securities. During 2015 the CSD processed 122 corporate actions and recorded 70 bond trades and 427 exchanges of equity shares.