Tunisia’s creation of a small-cap alternative market is part of an overall strategy that aims to promote financial markets as a complementary alternative to stock market financing of small-and medium-sized enterprises (SMEs). The alternative market also aims to assist large firms looking to reconstruct or to finance new projects.
Other recent signs of this strategy’s ongoing materialization include the promulgation of a law on financial security, the creation of a Mutual Fund for Investment and Risk (Fonds Commun de Placement à Risques à Compartiments — FCPR) and the development of institutional savings. The Tunisian government wants financial markets to pass from a 7% financing of the Tunisian economy (2006) to a 20% financing by 2009.
Authorities, aware of the hard-to-meet conditions of listing on the Tunis Stock Exchange, decided to create an alternative market side by side with the principal market and the bond market. Inaugurated in 2005, the alternative market comes with an accompanying program, designed to welcome newcomers to the financial market.
So far, 30 industrial enterprises have joined the pilot program, demonstrating a solid interest to enter into the financial market. A steering committee will oversee these enterprises, which could draw up to 70% of the costs of introduction from the Fund for Competitivity Development (Fonds de Développement de la Compétitivité Industrielle — FODEC), with a platform of costs not to exceed $23,000. The pilot program aims to provide financing to 50 enterprises by 2009.
Easier entry
The requirement of $750,000 minimal capital for entrance to the principal market does not apply to entering the alternative market. The realization of profits during the years leading up to introduction is also not a condition for entry to the alternative market.
Since the listing conditions are less exigent for entering the alternative market than they are for the principal market, the Tunisian alternative market has put into place several new structures of support and control. For example, the ‘listing sponsor’ is a new function created to serve as a financial consultant for the enterprise. Listing sponsors also assist in preparing files and accompanying the enterprise, as well as overseeing transparency and financial divulgation.
So as to insure greater liquidity to the securities traded on the alternative market, the financial security law authorized ‘market makers’ to assist in the listing of securities on this market. The market maker is required to post the price of buying and selling for minimal quantities.
Up until now, Tunisian SMEs have been penalized by numerous constraints, linked in particular to size and sector of activity. Thanks to the alternative market, they may now benefit from access to moderately priced financing, while at the same time maintaining a high enough level of protection to win the confidence of investors. Admission to the alternative market could be sought after by companies being publicly offered, and any other enterprise that opens its capital to at least 100 shareholders or five institutions.
The Tunisian alternative market takes into account the reality of the country’s businesses and the necessity of a high-performing financial market. Aside from the guarantee of transparency, the market includes important measures like the listing sponsor, who provides for accompanying and material assistance to enterprises, and the market maker, which favors liquidity in the market. These professions have been created to respond to the needs of the alternative market.
The success of similar markets in the UK and France has paved the way for countries with emerging economies to push ahead with the development of their own alternative markets.
The Alternative Investment Market (AIM), for example, is remarkably flexible and counts on the dynamism of businesses for its success. The London market asks for neither public float nor history of accounting, and in certain cases does not even require a prospectus visa from the London Stock Exchange authorities. Since 1995, AIM has listed over 1,300 publicly traded enterprises
ALTERNEX, France’s alternative market, is considered in financial circles as “a market with rules, but no regulations.” ALTERNEX’ conditions include investment of securities equal to at least 2.5 million euro, presentation of an accounting history dating back at least two years, the presence of a listing sponsor and a prospectus endorsed by the Paris Stock Exchange authority (AMF).
The future of growth
When questioned about the limited financing options previously available to Tunisian enterprises, Zeineb Guellouz, president of the Financial Market Council, explained that the system of financing Tunisia’s economy is based on debt, with a banking system that has been the sole purveyor of funds for financing the economy’s needs for over 50 years.
Such a system undoubtedly played a crucial role in the historical first steps to create the economic foundations of modern Tunisia. Today, however, the system is running up against its own limits, as witnessed by a particularly high level of non-performing loans (NPLs). The Tunisian government’s efforts to promote wider access among businesses to financing, as well as to promote financial markets as an alternative means for financing the economy represent a sophisticated response, if not quite a solution, to the problems of its out-of-date banking system.
