African capital markets play an important role in fostering African economic growth — Sunil Benimadhu, CEO, Stock Exchange of Mauritius

Sunil Benimadhu, Chief Executive of the Stock Exchange of Mauritius (SEM) gives an exclusive interview to Capital Markets in Africa and elaborates on aspects of capital markets development in Africa. Sunil has played an instrumental role in uplifting the operational, technical and regulatory infrastructure of the SEM and contributed to its emergence as one of the leading Exchanges in Africa. He is a regular speaker on emerging markets and on African markets in international stock exchange conferences 

To begin, congratulations to you and the Stock Exchange of Mauritius (SEM) for winning for the third time in five years the “Most Innovative African Stock Exchange of the year 2015 Award” by Africa Investor. Please, could you highlight some of the key innovations that have led to this recognition and any new innovations in the pipeline, please?

Sunil Benimadhu: Thank you. We are very pleased that Africa Investor has recognised our relentless efforts in recent years to innovate, explore new avenues of growth, introduce new products and scale up our activities to transform our Exchange into an international Exchange.

Our drive to modernise the SEM’s operational and regulatory framework dates back to 2009 when we embarked on a fundamental strategic reorientation of our activities to move away from a domestic equity-centric Exchange to a multi-asset class international Exchange. We have since implemented a number of innovative measures amongst which I would like to highlight two which have been very instrumental.

First of all, we introduced a multicurrency capital-raising, listing, trading and settlement platform. This platform gives issuers the possibility to list securities in US Dollars, Euros, Pound Sterlings, South African Rands and Mauritian Rupees, and also enables trading and settlement of transactions in the issuer’s securities in those five currencies.

Since 2009 to date, we have also, nearly every year, revised our listing framework to expand our product offering and introduced new Rules for the listing of Global Funds, Global Business Companies, Specialist Debt securities, Depositary Receipts, Exchange Traded Funds, Mineral Companies and Structured Products.

It is good to note that these initiatives have been very fruitful as listings and capital-raising in recent years have been a direct reflection of these innovations. Indeed, since 2009, we have listed 40 international products and enabled capital raising in different currencies up to a total amount of USD 2.3 billion by these international issuers.

As regards future innovations, in 2016, we intend to keep expanding our product offering. We will, amongst others, explore the possibility of offering a range of African currency derivatives against the USD, Euro and GBP to provide international investors with hedging tools against volatile African currencies.

We are also considering upgrading our technology to offer new features and enable the cross-linking of SEM’s markets with other markets in the region, including the Johannesburg Stock Exchange, so as to enhance liquidity in African markets over time.

Our main objective in the coming years is to establish ourselves in the international arena as an attractive capital raising, listing and trading platform and the preferred gateway for investment into the African region. We will definitely explore new initiatives and undertake new developments which will propel us further in this direction.

At the 2014 World Federation of Exchanges (WFE) general assembly in Seoul, South Korea. you were elected as a Director of the WEF’s Board for a 3-year term. What does this exclusive membership entail and how does this benefits SEM (in particular) and Mauritius capital markets (in general).

Sunil Benimadhu: The WFE represents 64 regulated exchanges across the world, and acts on behalf of a total of 99 organizations including affiliate members and clearing houses. The federation aspires to be a platform where Exchange industry professionals discuss issues of common interest, identify ways to enhance the efficiency of regulated markets, and support the industry as it constantly needs to  adapt to a fast-changing environment.

Being represented on the WFE Board is important for the SEM and also constitutes an excellent avenue to make its voice heard, both as an Emerging market Exchange and an African Exchange.

Emerging markets and African Exchanges want to leverage from the experience of the Developed markets with regard to a number of key market-related issues and the WFE provides a good opportunity for this. Moreover, it is of great value for Emerging Markets, African Exchanges and the SEM to participate in deliberations at the international level, to learn, to share and to work on meeting the best possible standards.

The SEM launched on the 7th of September 2015, the SEM Sustainability Index (SEMSI), comprising listed companies on the Exchange, that demonstrate good sustainability performance. Please, could you tell our readers the goal and benefits of this initiative?

Sunil Benimadhu: We want to help our listed companies understand that sustainability can be an important driver of value creation while also addressing new demands from investors. A culture axed on sustainability inculcates operational resilience in the long term, creates value for shareholders and can positively influence share prices.

We have also noted that in recent years there has been a remarkable growth in the number of international investment vehicles and asset managers which have earmarked funds to invest in sustainable products. Since the sustainability performance of SEMSI constituents has already been assessed against established criteria which have been based on the Global Reporting Initiative (GRI) guidelines, the SEMSI is a platform which can assist these responsible investors in easily identifying those sustainable companies which are listed on the SEM.

As an Exchange, we are also uniquely positioned to promote transparency, better governance and sustainability. By encouraging listed issuers and inspiring even unlisted companies to address social and environmental risks and opportunities and to expand their business planning horizons over the long term, we want, through this new Index, to drive the sustainability agenda at a National level.

The SEM’s Official Market capitalisation has lost US$ 570 million and SEMDEX Index down by 9.3 percent in 2015 (as at 29 October 2015)). What are the key factors for this negative sentiment? Do you think Mauritian companies are undervalued or overvalued?

Sunil Benimadhu: Emerging markets in general and African markets also have experienced high volatility and downward pressure since the beginning of 2015.

A survey of these markets indicates that that many of these have dropped by more than 7% on a year-to-date basis, with some experiencing even double digit percentage drops.

In Africa, the SEM has on a year-to-date basis dropped by 9.3 %, but other larger Exchanges like the Nigerian Stock Exchange and the Nairobi Stock Exchange have lost 13.4 % and 14.3 % in local currency terms as at the end of October 2015.

The current sentiment is partly due to the rising value of the US dollar. Our market is also feeling the brunt of the indiscriminate foreign exodus in the light of the Chinese markets’ turmoil.

However, it is important to note that despite the current negative environment, many of our listed stocks are performing very well and are valued at attractive price earnings multiples.

Furthermore, the Mauritian economy is expected to grow at a rate of 3.5% in 2015 and 4% in 2016. The fundamentals of many of our listed counters indicate some good investment opportunities on the Stock Exchange of Mauritius.

Small-Medium Enterprises (SME) has been ascribed to be the engine for sustainable economic growth for emerging countries. What obstacles face SME that wants to list on the Development & Enterprise Market (DEM) and what is SEM doing to assist them? Also, beyond bank loan what other financing options available to SME in Mauritius?  

Sunil Benimadhu: Our Exchange seeks to facilitate listing and capital raising by SMEs. The DEM is a market which was set up especially to cater for SMEs and start-ups showing promising growth potential.  It is attuned to the special nature of this category of companies and this is reflected in the DEM’s listing requirements which have been set at very flexible levels.

We currently have 50 securities listed on the DEM with a total market capitalisation of USD 1.4 Billion. And it is good to note that since its inception, till date, the DEM has enabled companies to raise expansion capital up to an amount of USD 0.3 Billion

That being said, seeking a listing on an Exchange can be a very rigorous process which can also be expensive. While we have pitched the DEM’s listing fees at very attractive levels in order to encourage SME listings, we still require these companies to be transparent and to ensure proper compliance with their reporting obligations.

Aside from a listing on the SEM and traditional bank loans, SMEs in Mauritius also have the possibility of tapping into venture capital funds, as well as the SME Partnership Fund. This fund was set up by the Government in collaboration with State Investment Corporation and some banks with the aim of investing in viable projects with significant growth potential.

What is your view on the clamouring for regional securities exchange in Africa (highlight any merits and demerits)?

Sunil Benimadhu: African Capital Markets, in spite of their small size, have an important role to play in fostering economic growth in the respective African countries.

The focus should be on growing and deepening these individual markets. I believe that the implementation of appropriate market-specific measures and the setting up of stock exchange infrastructure conducive to the cross-linking of these stock markets have more merit.

Regional markets might favour the stocks of the largest country of the regional grouping, causing the discrepancies in terms of size, market capitalisation, etc. between the stocks of the largest country and those of the small countries to be even more emphasized, thereby reducing even further investors’ interests for small countries’ stocks. 

On the other hand, Cross-linking, coupled with the lifting of exchange control, can, if well marketed, become a powerful engine of market development in small markets on the African continent and in the SADC region.  Cross-linking can enable an integration of small market while preserving the national identity of each market.  It can enable investors of a particular region to have access to stocks from other markets of the same region, thereby increasing both the number of players and the number of scrips available. In this way, Cross-linking can help to overcome the fragmented nature of markets in a smooth manner and can achieve the same objectives as Regional stock markets, with the advantage that its implementation can easily be justified both from a political and economic perspective.

On a final note, what is your outlook for Mauritius in 2016, given the current fuzzy global economic outlook as a result of slow growth in China and coupled with the likely increase in interest rate by Federal Reserves of United State?

Sunil Benimadhu: We expect that economic growth will revolve around 4% in 2016. This constitutes a relatively positive performance in the midst of an extremely difficult economic environment and a highly volatile backdrop for frontier and emerging markets.

It is clear that if Mauritius wishes to become a high-income economy in the next few years, the average growth rate should hit the 5%+ threshold on an annual basis.  I reckon that this is not going to be easy given the slowdown in growth rates across the globe, especially in the larger emerging markets like China. Furthermore, a tightening of interest rates in the US may lead to a relative strengthening of the US Dollar, triggering there by flight to quality, as we have seen in the past, and a reduction in FDI in Frontier and Emerging markets.

In the coming years, we need to increase productivity, scale up our activities in existing sectors and explore new sectors of activity. Many of our domestic companies are also expanding their operations into the African region and are expected to grow in 2016. Mauritius has a small and open economy that is susceptible to external shocks. But we also have an impressive record of resiliency.

Based on our track record and our future growth plans, we maintain a positive outlook with regards to the coming year.

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