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Bodiva Starts Stakeholder Market with BAI: Considerations for Two Exchanges with Distinct Routes

Bodiva Starts Stakeholder Market with BAI: Considerations for Two Exchanges with Distinct Routes

  • Salim Cripton Valá • President of the Board of the Mozambique Stock Exchange - BVM
  1. Strong Start-up of BODIVA and the IPOs Carried out by BVM

On June 9th 2022, the Angola Debt and Securities Exchange (BODIVA) had every reason to celebrate: it was the first stock exchange session open to trading the shares of Angola’s largest bank, and the first company to be listed on BODIVA, Banco Angolano de Investimentos, SA (BAI), which had recently made an Initial Public Offering (IPO) of 1,945,000 shares, representing 10% of its capital stock.

In the first session in the secondary stock market 20 stock orders were presented at a price of 21 655 kwanzas (46.55 euros), a price 5% above the final subscription price in BAI’s IPO.

This was the first company to be listed on the Angolan stock market and, according to Walter Pacheco, CEO of BODIVA, others may follow BAI’s example still during this year, and he also said that, with the listing of the first five companies, a stock index will be launched, to be called the Luanda Stock Index (LSI). Starting with a bank of the size and scope of BAI was a wise bet, because companies in the financial sector have been, in many countries, practically obliged to be listed on the stock exchange, helping to increase market capitalization, market liquidity and turnover.

The Mozambique Stock Exchange (BVM) understands perfectly the satisfaction of its counterpart, because 21 years ago the stock market was initiated in the same way in Mozambique, through the listing of 98 million shares of the Sociedade de Cervejas de Moçambique, SA (CDM), as a result of an IPO of 28 million shares, at a price of 15.00 MT per share (price of 1.03 MT for the Managers, Technicians and Workers of CDM), representing 28% of its social capital, with a demand of 51.83% above the initial offer of shares, having, as a result of this operation, the entry of 1971 new shareholders in the corporate structure of CDM.

After this first stock market operation, CDM held three more special stock market sessions after 2001. In December 2003, a special stock exchange session took place regarding the transaction of 10 614 744 shares (9.47% of CDM); in January 2012, the IPO of 9 681 244 new shares (8.637% of CDM’s share capital) at a price of 113.62 MT (before this operation the price was 42.00 MT per share), representing an overall issue value of 1100 million MT and, in August 2019, there was another IPO reserved for shareholders, in what was the largest financing operation ever carried out in Mozambique through the Stock Exchange, in the amount of USD 124.5 million.

Other special stock market sessions followed: in 2008, the Public Offering (IPO) of 10% of Companhia Moçambicana de Hidrocarbonetos, SA (CMH); in 2013, the IPO of 25% of CETA, Construção e Engenharia, SA; and, in 2014, the IPO of 10% of Empresa Moçambicana de Seguros, SA (EMOSE). This cycle of special stock market sessions, had its high point in 2019 with the IPO of 4.0% of Hidroeléctrica de Cahora Bassa, SA (HCB), where about 1100 million shares were sold, at a price of 3.00 MT per share, to a total of more than 15,000 new shareholders. With the HCB IPO, more than 2060 million shares were listed, representing 7.5% of HCB.

After the HCB IPO, which took place in mid 2019, several other operations of the same nature were in prospect, but were postponed due to the negative impact of the covid-19 pandemic globally, and particularly in Mozambique. The slow economic recovery we have seen since 2021 is a positive sign for the capital market, because if companies are depressed they usually turn inward to maintain their operation in an adverse context. Since February 2022, with the outbreak of the conflict between Russia and Ukraine, this event is affecting the production and distribution chains globally, mainly affecting the stability of the financial markets and causing crises at the energy level and in the availability of cereals, also affecting the economic situation and performance of Mozambican companies.

  1. HCB’s paradigmatic IPO

But, after all, what is meant by an IPO, also called an IPO, or even Privatization Via Stock Exchange? When a company launches an operation on securities, we are talking about an Offering. An offer can be: (1) private or public; (2) for sale, subscription, exchange or acquisition; (3) of shares, bonds or other securities, the most common case being of shares. An offer is public when the universe of investors to be addressed is not determinable in advance (if the universe of investors to be addressed is known in advance, finite and determinable, then the offer is private).

The Offer is said to be for sale when the shares that are the object of the sale already exist, and may be shares owned by the company or shares owned by shareholders of the company. In the particular case that one of these shareholders is the State, we are passing these shares from the public domain to the private domain, and in this case this IPO is a Privatization. If it is the first time that a company makes a Public Offering it is called an IPO (Initial Public Offering) because it is the first time that the company opens its capital to the public. A company that conducts an IPO may or may not be listed on the Stock Exchange. However, normally when a company goes public, it does so with the intention of being listed on the stock exchange. The carrying out of a public offering is regulated by the Securities Supervisory Authority, a function that in our country is exercised by the Bank of Mozambique.

The HCB IPO was, by excellence, the corollary of BVM’s strategic line of attracting large companies that are economically and financially sound, have an undeniable impact on the country’s socio-economic development, and have a high reputation. It was a strategic option of the company itself and of the Mozambican government. HCB is a strategic company in the country’s economy, and because of this, some peculiar characteristics stood out, such as the breadth and depth of the communication plan to investors and citizens, the exclusive eligibility to national investors, the innovation of the share subscription mechanisms (cell phones and apps), the use of new technological platforms for “mobile money” payment, the criteria for preferential attribution of shares to small investors, the observance of financial inclusion policies and guidelines, and the fact that it incorporated investors residing in 92% of the country’s districts.

The HCB’s IPO of Shares became an IPO that went far beyond the traditional concept of a public offering, particularly because of its focus on inclusiveness, and was a concrete initiative aimed at the economic empowerment of Mozambicans and the popularization of capital.

The HCB IPO was preceded by a vigorous financial education campaign, throughout the country, through the various means of communication (newspapers, television, radio, magazines and social networks), including the use of local languages to convey relevant information. Information was disseminated in all of the country’s provinces, to the most diverse groups of investors (HCB workers, community and religious leaders, economic agents and civil society, civil servants, members of the Provincial Assemblies, heads of localities, among other groups).

Besides the traditional subscription of shares through commercial banks, the use of new mobile technologies, mobile phone operators and “mobile money” technological platforms (m-Pesa and e-Mola), have permitted the development of unique technological solutions in the country, which have made possible the subscription of shares through cell phones (smartphones via the internet or more basic cell phones via USSD technology), with payment being made through various alternatives (ATM, bank transfer, mobile money). This new technological solution made possible the participation of citizens, banked or not, anywhere in the national territory, even in those places where there were no banking infrastructures, or where the respective access was too far away. It was in this way that 36% of the purchase orders were transmitted via cell phones, although this was the first time that this solution had been used in Mozambique.

In the HCB IPO an investor segment was also created, aimed at Mozambicans with lower income, called “Smaller National Investors”, where Mozambican citizens participating in this operation were exempted from paying any fees beyond the value of buying the shares (the same not happening with investors with higher income). On the other hand, the conditions defined for these lower income investors ensured that the purchase of shares would be fully satisfied, which did in fact happen.

The contribution of the HCB’s IPO to the financial inclusion of citizens was evident – low share price, citizens with lower income, exemption from taxes, citizens without bank accounts, regions without banking infrastructures -, so that more than 99% of the subscription orders were given by individual investors, from all the country’s provinces (100%) and from 92% of the districts.

For this operation, an information system was developed for the HCB’s IPO, which in real time showed the number of subscription orders and the respective quantity subscribed by each of the universes of investors, and also their geographical distribution (by province and by district), allowing HCB to know the level of subscription for the operation.

For all these reasons, the HCB IPO was internationally recognized by the attribution of two important prizes, at different times and by different entities (“Special Recognition Prize” by “DealMakers Africa” and “Deal of the Year 2020 – Equity Winner Africa” by “The Banker” magazine), both for the operational model and for its contribution to the financial inclusion of citizens.

  1. Stock Market Indices and Company Quotes at BODIVA and BVM

According to Walter Pacheco, CEO of BODIVA, Angola will have its own stock index, the Luanda Stock Exchange (LSI), as soon as at least four more companies, in addition to BAI, are listed on the stock market, which is expected to occur in the near future.

The existence of one or more stock exchange indexes is an important instrument through which investors can analyze the behavior of the stock market, and is a fundamental factor for the public recognition of a stock exchange, whether at a national level or at the level of other financial markets. Aware of its importance, BVM launched three stock market indices in 2019: BVM Global, BVM Bonds and BVM Shares, whose scope is identified by their designation.

In the view of BODIVA’s CEO, it is expected that in a horizon of five to ten years, about 20 companies will be trading on the Angolan stock market, and that the stock market will be dominated by financial and oil companies, which, given the size of these types of companies Angola’s market capitalization is expected to be catapulted to high levels, which led BODIVA’s CEO to state “We will not be able to compete with South Africa in the next five years, but we will be bigger than most stock exchanges on the [African] continent.

In Mozambique, the current situation is 11 listed companies in about 23 years of stock exchange (there were 13 companies, but two were delisted for failure to comply with information duties to the market and investors). The current market capitalization of BVM, in the first half of June 2022, reached 128 838 million MT (USD 1998 million), corresponding to 19.3% of the national GDP. In Angola, the market capitalization of BAI, the largest Angolan bank and the first company to be listed on BODIVA with shares, exceeded USD 900 million (representing 45% of Mozambique’s market capitalization). BODIVA and BVM, operating in different realities, with different results, but having the same objective, which is the growth of the capital market and the stock market, both seek to breathe new adrenaline into the stock market.

BVM has all the reasons to be confident in the future, but not all the objectives to be reached depend exclusively on BVM, being conditioned by the context, the actions and wills of third parties. This is the case of full compliance with the Law on Public-Private Partnerships, Large-Scale Projects and Business Concessions (Law No. 15/2011, of August 23, which establishes that between 5% and 20% of the capital stock of the companies covered by this law must be the object of preferential sale to national citizens, through the stock market, up to five years after the start of their operations. Before 2016, the valuation of one of the mining companies operating in the country, Vale Mozambique, was valued at USD 4000 million (twice the current market capitalization of BVM) and, if listed, the ratio of market capitalization would increase from 19.3% to almost 60% of GDP.

The sale of shares held by the companies that make up the state-owned business sector (SEE), and their subsequent listing on the BVM, would help to increase the size of the stock market. Likewise, the obligation to list on the stock exchange a minimum percentage of the capital stock of commercial and investment banks, insurance companies, mobile telephone companies, companies involved in the exploitation of mineral resources and the extractive industry, business concessions and other large companies included in the list of the 100 largest companies in the country, would catapult BVM to levels never before attained.

BVM may not yet be as large as it would like to be, but it fully complies with the main reason why it was created by the Government in 1998: That of being an alternative source of financing for the economy, and for this reason, throughout its 23 years of existence, financing to the economy by the end of the first half of June amounted to 234,767 million MT (USD 3641 million), of which 80.7% to the State (MT 189,450 million, USD 2938 million) and 19.3% to the private sector (MT 45,317 million, USD 703 million), thus there is a high margin for private sector companies to use the capital market as a source of financing, just as the State does.

Due to their relevance in the economy, BVM has given special attention to Small and Medium Enterprises (SMEs), whose number in Mozambique exceeds 60,000, representing 97.6% of all companies, 49.6% of jobs and 24.6% of the country’s turnover, thus constituting a priority target for BVM.

Although BVM began its activities in 1999 with the Official Listed Market (geared towards large companies), in 2009 we created a stock market for SMEs (the Second Market), in 2015 we reduced the quantitative requirements without affecting the qualitative requirements, and in November 2019 we created an incubation, preparation or transition market (the Third Market).

As can be seen in the diagram above, the latest listed companies are using the Third Market as the “Gateway” to the Stock Exchange.
  1. Financial Education and Interconnection between Exchanges

Financial education is seen as a strategic pillar of BVM. In 2013, the first Financial Education Program (PEF) on the Stock Exchange in Mozambique was launched, which is already in its third generation (PEF, 2020-2024). As I mentioned during the presentation of the Financial Education Program 2020-2024, in 2020: ” … financial education is assumed by BVM as the determining and transversal pillar of all ongoing initiatives aimed at the sustainable, healthy and inclusive development of the capital market and the Stock Exchange; … , It is vital that the entrepreneur, the investor and the citizen have more information about the capital market and the Stock Exchange, what is its nature, role, objectives, financial instruments, advantages and how to use the products and services available at BVM” (Valá, 2020).

The following table shows the reach of the targets set by BVM taking into account the main target groups defined

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In a country with a financial culture excessively dominated by the banking system, the action of education and financial literacy is fundamental to bring entrepreneurs and investors even closer to the capital market and the BVM, demystifying the idea that the Stock Exchange is only for the elites, for rich people or for unscrupulous speculators. Taking into account the concrete reality of the country (with low per capita income, low savings rate, low economic productivity, very depressed companies due to external shocks, high poverty rate, among other factors), the effort made in this area is positive, but it must be recognized that the road to be followed is still long and winding.

The Mozambican Stock Exchange is a member of the Association of National Securities Coding Agencies (ANNA), the Organization of Islamic Cooperation (OIC) Member-State Stock Exchanges Forum, the Association of African Stock Exchanges (ASEA), and the Committee of SADC Stock Exchanges (COSSE), and is currently chairing the COSSE Capacity Building and Visibility Sub-Committee. With all these organizations where BVM is affiliated, we have been sharing our experience and harvesting the lessons and learnings from peer exchanges, including absorbing “best practices” in the field of capital markets, stock markets and on stock exchange related matters.

The 1st Meeting of the CPLP Stock Exchanges Forum was held in July 2018, in Sal Island, Cape Verde, and at that event the Memorandum of Understanding was initialed between Euronext Lisbon, the Cape Verde Stock Exchange (BCV), the Angola Debt and Securities Exchange (BODIVA) and the Mozambique Stock Exchange (BVM). At the time, I argued that:

“Stock Exchanges must necessarily be connected to the world, to other financial markets, to investors and entrepreneurs, to the global financial system. This is an unavoidable reality and the BVM cannot and should not be an exception. It is in this perspective that we have been carrying out a bold program to promote cooperation and partnerships with similar entities, to learn from the experiences of stock exchanges located in other parts of the world.

Greater cooperation and interconnection with CPLP stock exchanges is part of BVM’s strategic priorities for the future, and I believe it is a driving factor in making Mozambique’s financial system and capital market more vibrant, resilient and sustainable” (Valá, 2018).

Our bold program of cooperation and partnerships with peer institutions and with the organizations to which we are affiliated has allowed for “lateral learning” and the harvesting of new visions, approaches and approaches that allow for sustainable growth in a globalized world with profound transformations. Our cooperation with BODIVA has seen a significant increase since 2018, even with the limitations imposed by the covid-19 pandemic, which has caused the virtues of new Information and Communication Technologies (ICT) to be fully exploited.

  1. BVM and BODIVA Partnership and the Future of Economic Development

It is commonly known that Stock Exchanges are important institutions that drive capitalism, the market economy, the financial system, and economic globalization. Developed and industrialized countries have dynamic and vibrant capital markets, which contribute to oxygenate the economy, enable bold projects, disperse risk, reduce the cost of money, give greater visibility to companies, and promote ethical business. Both in Mozambique and in Angola, their stock exchanges are not yet the effective barometers of the economies, due to their size, number of listed companies, stock market capitalization, market liquidity, transaction and business volume.

Between BVM and BODIVA there is already a fruitful cooperation, both bilaterally and within the framework of the CPLP, COSSE and ASEA Stock Exchanges Forum. We have been exchanging experiences and knowledge in areas as diverse as staff training and capacity building, financial literacy, regulatory framework, technology base, introduction of new products and services, good management practices, and how to attract foreign investors.

The Mozambican Stock Exchange had its first IPO in 2001, and subsequently had four more, of companies in the fields of beverages, hydrocarbons, construction, insurance, and energy. A diversified portfolio, therefore, of companies in different branches of economic activity. There are some notes to highlight, such as the fact that no companies from the agribusiness, tourism and banking sectors have been listed yet. Companies from the services area are already using BVM, SEE companies are interested in using the capital market products, and SMEs are interested in listing, but roughly speaking they do not meet the requirements.

BODIVA has made a good start with the stock market, after several years operating in the debt market, where the state decided to sell 10% of BAI’s shares, shares held by SONANGOL (8.5%) and ENDIAMA (1.5%). Starting with the dispersion of shares of a bank, which by the way is the largest bank in the Angolan financial system, is clearly a good start for the Angolan stock market. To mention that this operation is in line with the objectives of the privatization program to be done via the Stock Exchange. For the Angolan government, the implementation of the stock exchange privatization program allows contributing to a better redistribution of national income and allowing a wide participation of citizens as shareholders (particularly small investors) in reference companies, and this same objective was pursued at the time of HCB’s IPO in mid-2019 in Mozambique.

BODIVA has in perspective the listing of two more banks later this year, and later they intend to disperse part of the capital of two large companies such as SONANGOL and ENDIAMA, operating in the oil and diamond business, two products that historically contribute most to the GDP and to the revenues of the state.

In the framework of the diversification of the economy and its structural transformation, the restructuring of the State Business Sector, and the development of the extractive industry in Mozambique, it is vital that the large undertakings of Public-Private Partnerships, Large-Scale Projects and Business Concessions, as well as banks and insurance companies “can be mobilized” to disperse part of their capital on the stock exchange. It is urgent that this happens, and this movement of listing large companies on the BVM can contribute to inclusive economic growth. The goal of democratizing capital is to create a concrete opportunity for Mozambican savers to invest in profitable, well-managed, and prestigious companies.

Mozambique, like Angola, is in a crucial phase of its economic development, after 47 years of independence and, entering the “natural gas era”, but also in the unleashing of the high potential in agribusiness, tourism, the extractive and transforming industry, infrastructures, the mineral-energy complex, the financial sector, among others, will have to induce policy and strategy measures that require certain types of companies to be listed on the stock exchange, so as to result in the greater availability of financial resources in the market, in the reduction of the cost of money, in the reduction of investment risk, in the good governance of companies, and which will propitiate the significant growth of the capital market and the stock exchange.

A more accelerated, balanced, and sustainable economic development of Mozambique requires stronger, visionary, and interventive developmental institutions, the kind of institutions such as the Ministry of Economy and Finance, Bank of Mozambique, Tax Authority of Mozambique, CTA, OCAM, OCAM, IPEME, IGEPE, BVM, APIEX, ISCAM, Mozambican Association of Banks, Institute of Corporate Governance, and others, including the creation and enhancement of the Sovereign Fund. A more dynamic and vibrant secondary market can be a positive catalyst to help the country’s economy grow with equity and inclusion.


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