At a time when the Companies need more capital to stabilize the businesses and grow further as the tourism and other businesses are just returning to normal, IPO is one clear option of the big-time businesses. The Stock Market in Maldives is very cost effective in terms of cost of capital and thereby less risky for the Companies relative to the other options.
It is high time that the Companies and the individual investors change the perceptions towards the Stock market and jump into reap the benefits of a Stock Market that is about to boom. The primary benefit for the fast-growing Companies to source their capital requirements through the stock market is the significantly less cost and strain free in comparison with the loan capital. Usually in almost all financial markets where there is a developed stock market the cost of capital is much higher than the loan capital. In those economies the risk margin on the interest rates i.e., the difference between deposit and the loan interest rates, are between 3%-6%. However, in Maldives it is notably high between 9%-11%, as the loan interest rates vary between 11%-14% while the interest rates on deposits are between 2%-3%. Therefore, the banking sector is thriving, and it is highly imbalanced.
If the businesses turn towards the Stock Market for Capital, the cost of capital via dividends could be much lower than the interest while the banks too will reduce the rates and therefore the market will reach a balance eventually. On the other hand, the investors too could benefit by earning much better returns for their investments than mere 2%-3%.
Further, there are plenty of additional benefits by listing the Company in the stock exchange of the country:
Listing on a recognised stock exchange means that the business will receive wide media coverage, usually a very favourable one, thus increasing the company’s visibility and recognition of its products and services. The company’s activities will also be reflected in the reports by professional financial analysts. Such public profile supports liquidity of the shares and contributes to the expansion of the business contacts. The Company’s image will receive a significant boost and this will not only help to reach out to larger customer base but also earn reputation and increase confidence amongst various other stakeholder including suppliers, bankers, state institutions, and it help to attract skilled employees.
Further, by complying with the corporate governance structures and policies the Company’s decision-making process will become more professional, thus potentially leading to further stability and growth of the business.
By becoming a listed Company in a stock exchange, the businesses become more professional and owners become stress free from the day-to-day operations. Further it also helps them to liquidate a portion of their ownership for further diversification to invest in their passionate areas or even to use for emergency.
In order to raise capital via the stock market, the Companies generally enter through an Initial Public Offer (IPO). Once a company decides to move forward with an IPO, it has to submit the application in the specified formats as per the Listing Rules to the Maldives Stock Exchange along with the required supporting documents including a Prospectus duly approved by the Capital Market Development Authority and the Registrar of Companies. The minimum requirement for a Company to be listed on the first board is MVR 5.00 million and the subscription open for public should not be less than 10% of issued and paid-up share capital including the proposed offer and a minimum of 250,000 shares or shares with total face value of MVR 500,000.
The initial Fee for the listing on the first board of the Maldives Stock Exchange is calculated as 0.05% of the amount to be listed with a minimum of MVR 100,000.00 and a maximum of MVR 250,000.00. Further there will be an annual fee of MVR 40,000.00 up to a total market capitalisation of MVR 100 million and varies based on the total market capitalisation of the Company.
It is high time that the leading business in Maldives turns towards the stock market to raise capital so that the Capital market become more vibrant and the resource allocation process of the economy becomes more balanced and efficient.