The OECD is asking the government to set an example by listing state-owned enterprises (SOEs) on the stock exchange.
The newly created Banco de Fomento can be a key player in boosting the capital market. Among the list of recommendations that the Organisation for Cooperation and Development (OECD) presented this Friday to the Portuguese government is the use of this tool to attract companies to the stock market. In addition, OECD experts leave a warning: To stimulate capital market development, the Portuguese state should encourage the listing of state-owned enterprises (SOEs).
Since the financial crisis, the number of listed companies has been falling, limiting the relevance of the capital market in financing Portuguese companies. OECD experts made a diagnosis of the national capital market in collaboration with the Securities Market Commission (CMVM) and at the request of the Ministry of Finance, which was presented in June. This Friday, the recommendations for intervention are released.
Part of the problem is related to a “lack of awareness in the Portuguese corporate sector of the actual flexibility that is available in the legal and regulatory framework for listing, disclosure and corporate governance regulations as well as the availability of different market segments,” the OECD explains.
The organisation, therefore, suggests that the Portuguese Securities Market Commission (CMVM) and the Lisbon Stock Exchange team up with other public authorities, companies and financial market associations to create a dedicated awareness campaign aimed at informing executives about existing opportunities.
“An option could be to institutionalise the ‘Portuguese Companies Circle’ under the auspices of the newly created Banco de Fomento to serve as a platform for a continuous exchange of such information,” recommends the OECD.
In addition to serving to clarify companies about market financing, the bank – which will take off effectively in November – will also be able to provide subscription and market maker services for smaller companies unable to access larger financial institutions and in a scenario of scarcity of such services. “Another consideration would be tasking a domestic institution, such as IAPMEI and Banco de Fomento, to provide or support market research on smaller companies,” the organization adds.
Portugal without state-owned enterprises on the stock exchange
The initial OECD diagnosis indicated that the capital market is seen as a source of funding for only three out of ten companies in Portugal. Not wanting to relinquish control, the weight of regulation and bonds, together with the low liquidity of the national stock market, are the main reasons that discourage stock market entry. Against this situation, the organisation’s main recommendations are to lower these barriers, but the OECD also leaves a message to the government about state-owned enterprises.
“Portugal also has an important number of large unlisted companies, including companies from the financial sector – notably insurance companies – that do not face any size constraint for being listed. Importantly, and in contrast with many other European countries, none of the large Portuguese state-owned enterprises are listed,” the OECD warns.
To stimulate the capital market development, the organization recommends the Portuguese government to encourage the listing of public companies that are considered suitable from a macroeconomic and structural point of view. Besides setting an example, it would “help to obtain a critical stock market size and visibility among international institutional investors.”