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Maltese capital markets have continued to develop at a steady pace over the last five years.
Capital markets refer to the financial markets where companies or the government, have the opportunity to raise funds by selling securities, such as shares and bonds, to investors. A thriving capital market can attract investment, boost economic growth and provide a source of financing for companies to expand their operations and as well as create jobs. Therefore, a correlation between capital markets and a country’s economic performance is evident. So far, in Malta, the bond market has developed at a faster pace than the market for equities (shares). Many have expressed their views emphasising the pros and cons for business owners and their companies going public i.e., a private company’s initial public offering (IPO) or share sale, resulting in it becoming a publicly traded and owned entity. There are a number of benefits of public ownership of companies to the economy at large. These benefits can be divided into three categories: Governance, Performance, and Social.
Governance – Publicly owned companies are subject to greater scrutiny and accountability compared to privately owned companies. This ensures that they are operating in the best interests of the public rather than solely for the benefit of their owners or shareholders. This results in better decision-making and more responsible behavior. Since Publicly owned companies are required to disclose more information about their operations and financial performance, this also significantly increases transparency.
Performance – Going public can also help a company’s performance, in fact one of the biggest advantages of going public is that it allows companies to raise large amounts of capital by selling shares to investors. This capital can then be used to fund growth initiatives, invest in research and development, or pay off debt. Publicly owned companies may be better equipped to pursue long-term goals that benefit society, such as investing in research and development or sustainable practices, without being solely driven by short-term profits. They also have the potential to create a multiplier effect in the economy. when public ownership of companies is the implementation of public ownership is implemented effectively. This is because public ownership can lead to increased investment, job creation, and economic growth. When a company is publicly owned, it can access capital more easily, which can be used to invest in new projects, expand operations, and create employment opportunities. As a result, this can lead to increased consumer spending and economic activity in the surrounding community.
Social – Public ownership also provides a mechanism for the public to partake in the wealth created by companies through growth and dividends. This can aid in reducing income inequality and establishing a more equitable distribution of wealth. Publicly owned companies offer investment opportunities to individuals who may not possess the resources to start their own businesses, giving them the opportunity to invest in companies and potentially earn a return on their investment.
Despite the benefits of companies going public, one must keep in mind that going public is not always the best option for every company it is important to consider the specific circumstances and goals of each company. It is also imperative that only companies with a positive track record, a history of earnings growth, a strong potential for future growth, a sustainable market for their product or service, good corporate governance, and a highly qualified management team, should consider going public.
Malta currently has a very attractive fiscal incentive to go public with no capital gains tax payable by shareholders or companies that sell their shares on the local market. This benefit is also availed of by the incoming shareholders who do not pay any capital gains tax should they later sell their shares at a profit on the local stock exchange. Given the benefits to the economy of having more publicly traded companies, it would be beneficial if the government were to consider implementing other drivers to attract local companies to go public.
The growing, local private pension industry, which, after just 7 years, has over €75m in savings, is set to balloon over the next 10 years, possibly hitting the €1bn mark. Should the government legislate rules to enforce that part of these pension funds are invested in the local capital markets, this would help valuations and liquidity.
Another incentive could be a reduction in tax on dividends for the shareholders of locally listed companies. This would fit in perfectly with the expected shift in the local taxation system, from a full imputation system to a classical tax system and this would in turn allow the government to charge a tax on profits to the company and separate tax charge on distribution of dividends that could be at a lower rate for shareholders of listed companies.
Nick Calamatta is Co-CEO of Calamatta Cuschieri
Calamatta Cuschieri Investment Services Limited is a founding member of the Malta Stock Exchange and licensed Investment Services company by the Malta Financial Services Authority.
The information provided on this website is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Similarly, any views or opinions expressed on this website are not intended and should not be construed as being investment, tax or legal advice or recommendations. Investment advice should always be based on the particular circumstances of the person to whom it is directed, which circumstances have not been taken into consideration by the persons expressing the views or opinions appearing on this website. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views, or opinions appearing on this website. You should always take professional investment advice in connection with, or independently research and verify, any information that you find or views or opinions which you read on our website and wish to rely upon, whether for the purpose of making an investment decision or otherwise. CC does not accept liability for losses suffered by persons as a result of information, views, or opinions appearing on this website.
Calamatta Cuschieri Investment Services Ltd is licensed to conduct investment services business under the Investments Services Act by the MFSA and is also registered as a Tied Insurance Intermediary under the Insurance Distribution Act.
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