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Stirred Not Shaken |
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Written by B. Tyril
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Thursday, 17 April 2008 |
As a versatile people used to volatility, the Faroese can be competitive anywhere in the world — and as consolidation continues, Faroese companies will become stronger and more fit for international business, says VMF’s Sigurd Poulsen.
With the current turbulence in the international money markets, the Faroese Securities Market, or VMF (Virđisbrćvamarknađur Föroya), is not expected to see much activity, if any, in terms of initial public offerings in the immediate future. However, according to VMF president and CEO Sigurd Poulsen, ongoing consolidation in most sectors of industry and commerce could pave the way for a successful introduction of the First North small cap market.
While getting more foreign investors and capital market consultants familiarized with the Faroes comes as a natural next step, the Faroese themselves may have to get more used to securities trading. VMF information activities include seminars and courses to help people learn more quickly about the fundamentals of investment. “After all, we’re still quite new to this as a nation,” Mr Poulsen says.
He adds that in the current climate of international turmoil, OMXI-FO (OMX Iceland/Faroese Securities Market) shares have behaved basically like comparable shares in neighboring countries. OMXIFOGI is the new general index for the shares of companies quoted on the OMX Iceland/Faroese Securities Market.
“We have four companies quoted on the OMXI-FO as yet and we know others are working to become listed in the future. With regard to the ongoing privatization process in the last few years, our new political leadership has signaled that it will not push forward at this point — and given the current situation with high levels of uncertainty, waiting for things to settle could be wise. But of course, this means it will probably take some more time than expected say a year ago, before we see more flotations.”
Strengthening the shareholder culture of a country like the Faroes could take long, although things have moved quite rapidly in recent years.
One of the tasks ahead: presenting the First North, the OMX Nordic small cap market. This market is based on a similar principle as London’s AIM (Alternative Investment Market) — that is, slightly different reporting and capital requirements compared to the main market however with the same regulations applying for trading. Another difference is that whereas on the main market the listed companies are fully liable themselves when it comes to compliance with reporting requirements, companies listed on the First North market are instead represented by fully liable, third-party consultants. That means the companies won’t have to have their own staff performing time consuming, compliance related tasks but can buy such services from specialist consultants instead — which again means First North companies can be smaller and leaner.
“Experience from AIM shows that once companies get listed there they tend to stay there — it’s more flexible and less burdensome administratively than the main market and it offers protection against hostile takeovers.”
If small is beautiful, Faroese companies indeed qualify. The average number of employees — counting private businesses and public organizations — is five.
“We’ve had ongoing consolidation for a while now in virtually every sector but the smallness of our companies suggests that there’s some very good potential for more mergers and acquisitions.”
For a community familiar with volatility, like the Faroes, navigating through turbulent times shouldn’t be too difficult, when compared to others who may need a more stable environment to work from, Mr Poulsen said.
“Like many other countries, the Faroes is being affected by the subprime crisis firstly by the reduced confidence in the financial sector as such — not particularly in our institutions but in the whole sector on a global scale — and secondly, in result of that, by the fact that credit is generally becoming more expensive, with higher risk fees.
“But such are markets — they tend to go too far and that’s something one has to learn to live with. In today’s international economy, declines and gains have no regard for national borders and there are different kinds of reactions to financial news that affect the prices of shares.
“The trick is building up sufficient strength to withstand periods of market stress and that will require that companies have more capital. In times when equity is more expensive than debt, that would imply reduced competitiveness but on the other hand… Companies based in a volatile environment need to achieve a position that enables them to survive those periods of turbulence that tend to occur every once in a while. Faroese companies could then gain a competitive edge that would set them apart from others. However, their shareholders would need to be able to understand the nature of such competitiveness, which would probably mean that many of the shareholders would have to be locally based.”
Link to pdf presentation...
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Business Environment