Tunisia’s stock market has seen steady growth in capitalisation in recent years, and while the number of initial public offerings (IPOs) was limited in 2016, the exchange registered a positive performance over the year due to strong results in the industrial, consumer goods and financial sectors.
The near-term outlook looks equally encouraging, with several IPOs in the pipeline. The bourse is looking to accelerate that momentum by bringing in new products and calling for supportive measures from the government – such as additional listings of publicly owned firms, telecoms operators in particular – to further raise its level of development.
Equity Market
There were 81 companies listed on the equity exchange of the Tunis Stock Exchange (Bourse des Valeurs Mobilières de Tunis, BVMT) as of early April 2017, up from 56 in 2010. There were 68 companies listed on the BVMT’s main equity market and 13 on the country’s alternative market, which is focused on growth-oriented smaller companies.
Market capitalisation totalled TD19.78bn (€8.4bn) at the end of February 2017, according to the BVMT. This was up from TD18.5bn (€7.9bn) at the same point in 2016, TD18.3bn (€7.8bn) in February 2015 and TD12.34bn (€5.2bn) in early 2011. The market capitalisation of the principal market in February 2017 stood at TD19bn (€8.1bn), up from TD18bn (€7.7bn) a year earlier, with the alternative market making up the remaining amount.
Composition
The financial services industry sectors dominate equity market listings, accounting for 50.8% of capitalisation on the main market as of February 2017, with 26 companies. The next-largest segment is consumer goods, on 29.8% of the total, followed by consumer services at 8.9%.
The largest individual company listed on the exchange is drinks manufacturer Société de Fabrication des Boissons de Tunisie, with market capitalisation of TD2.38bn (€1bn) as of the end of February 2017, equivalent to 12.5% of the total capitalisation on the principal market. It was followed by (Banque Internationale Arabe de Tunisie (BIAT), the country’s largest privately held bank, at TD1.56bn (€670m), or 8.2% of the principal market’s capitalisation. In third place was another financial services player Banque de Tunisie, reaching TD1.46bn (€626m), or 7.6%.
Trading
The total value of secondary trading in listed securities – including bonds, although the great bulk of the figure is made up of equities – on the BMVT stood at TD235.8m (€101.1m) in the first two months of 2017, down 24.7% on the same period in 2016. The figure for 2016 as a whole stood at TD1.74bn (€746.5m), down 18.8% on the previous year. This included trading in shares and rights worth TD1.99bn (€853.4m) in 2015, up from TD1.65bn (€707.6m) the year before. Equity market trading and share ownership is currently dominated by retail investors, with a comparative lack of activity by financial institutions, which observers put down primarily to a local culture of risk aversion leading such firms to prefer to invest in less volatile assets, such as real estate and bonds.
However, Lilia Kamoun, senior analyst at brokerage Tunisie Valeurs, told OBG that this is starting to change, citing indications that local institutional investors were returning to the market. This could have myriad benefits for the market. “Greater involvement of institutional investors would address the liquidity problem of the Tunisian market and solve the issue of market depth by increasing the number of listed companies,” Mourad Ben Chaabane, general manager of brokerage firm MAC SA, told OBG.
In May 2016 the state-backed Deposits and Consignments Fund and BIAT launched an equity mutual fund, while insurance firms showed signs of renewed interest. “As more companies in Tunisia go public, the range of tradeable investment opportunities will increase, which will attract more insurance companies – and other institutional investors – to the stock exchange,” Mohamed Dkhili, CEO of GAT Assurances, told OBG.
Foreign investors held 24.5% of market capitalisation at the end of February 2017, down from 24.7% at the end of 2016 but up over the longer term, from 21.2% at the beginning of 2011. Kamoun told OBG that foreign interest in the market was likely to shrink further in the near future as a result of the fall in value of the Tunisian dinar over the first half of 2016, which could deter investment from abroad given concerns about further potential devaluation.
Despite current low valuations, the market is a promising one for investors with long-term horizons, according to Kamoun. “There are good deals to be made,” she told OBG in October 2016. “However, the question is exactly when a recovery will take place.” Kamoun said that the country’s construction sector, which was underperforming at the time, held high potential to turn around quickly.
Performance
Equity market investors in Tunisia have had a good year. Tunisia’s all-share index, the Tunindex, stood at 5598 in early April 2017, up from 5403 in the same month in 2016, and a year-to-date rise of 2%, following a somewhat flat year in 2016 as a whole. The Tunindex20, which covers the 20 largest stocks, registered a slightly higher year-todate increase of 4% to the beginning of April 2017.
The all-share index experienced a bumpy first half of 2016, rising three times to levels of between 5480 and 5550 between January and June but each time falling back to roughly where it had started at 5042. This was followed by three fairly flat months, before the index saw steady rises over the course of October and the first half of November, and a slight contraction to end the year at 5424 in December.
The index largely levelled out in the first quarter of 2017, dipping to a low of 5454 in mid-February before stabilising to the start of April.
Sector Breakdown
The best performing of the five major economic sectors listed on the exchange for the first three months of the year was construction materials, with the sectoral index up 6.4% from the start of 2017 to the end of March. This was followed by shares for industry, which were up 5.8%, and the insurance and food and beverage segments, which rose by 4.69% and 4.66%, respectively. Consumer services shares lost the most value over the same period, falling by 6.5%.
Telecoms firm Sotetel was the best-performing individual share in the first two months of 2017, up by 30.9% over the period. Pharmaceuticals company Société des Industries Pharmaceutiques de Tunisie was the second-best performer, with a valuation rise of 21.9%, having seen an increase of 22.1% in 2016.
Accounting for more than half of the exchange’s total market capitalisation and often underpinning overall growth in the market, the financial sector’s shares rose by a collective 8.6% at the end of 2016. The sector recorded an 11.3% rise in the value of banking shares, but insurance and financial services equities saw contractions of 7.4% and 5.5%, respectively. “Banks have been performing well despite the sluggish state of the economy as they have been making good returns off investments in state Treasury bonds,” Salma Zammit, senior analyst at local brokerage MAC SA, told OBG, adding that their intermediation activities had been doing less well due to low levels of investment in the economy.
Tunisia’s financial sector is expected to face a number of challenges in coming years as a result of regional instability, which could affect stock market performance. “After the 2015 terrorist attacks, the central bank allowed lenders to stop classifying non-performing loans in the tourism sector, which has been struggling and to which all banks are heavily exposed,” Bassem Neifer, an analyst at equity research firm AlphaMena, told OBG. “This has meant that they were not obliged to provision for them, however, when the circular expires in 2017 it will lead to higher provisions and worse performance in the sector.” Neifer said that new regulations restricting the amount banks can lend to related parties, such as businesses within the same conglomerates or holding groups, could also hinder the sector’s performance in the near future (see Banking chapter).
The market’s overall performance in 2017, according to Kamoun, will depend on broader macroeconomic indicators and political uncertainty, such as the development of recently strained relations between the government and the country’s leading trade union, the Tunisian General Labour Union (Union Générale Tunisienne du Travail, UGTT).
“The market’s performance is closely tied to the political and economic context. What would help most with its performance would be improvements to public finances, anti-corruption efforts and an end to the tensions between the UGTT and the government, as these would help to bring back investor confidence generally,” Kamoun said.
Listings
Only one new listing took place in 2016, that of pharmaceuticals manufacturer Unimed in May. The IPO brought the number of pharmaceuticals firms on the exchange to three, and allowed Dubai-headquartered private equity firm Abraaj to partially exit its investment in the company, in which it had acquired a stake in 2011. The offering was 31.5 times oversubscribed, the highest level recorded on the exchange to date, underscoring strong demand from local investors for new offerings.
In line with many African and Middle Eastern exchanges, listings activity in Tunisia has been slowing in recent years. The Unimed introduction followed By the end of the first quarter of 2017 two additional companies had added their names to the Tunis Stock Exchange, pushing the total number of firms trading on the bourse to the current 81 two IPOs in 2015 – those of Universal Auto Distributors Holding on the main exchange and manufacturer Officeplast on the alternative market – in a slowdown from six the previous year and 12 in 2013 on both the main and alternative market.
By the end of the first quarter of 2017 two more companies had added their names to the BVMT, pushing the total number of firms on the exchange to the current 81. At the beginning of March ceramics producer Sanimed was listed on the country’s alternative market, with the company reaching its goal of raising TD17.1m (€7.3m) in new capital. The offering was 1.5 times oversubscribed. At the end of the same month, Atelier du Meuble Intérieurs was introduced onto the main market. This offering saw the company sell more than 1.2m shares, or 36.1% of the share capital, at TD5.20 (€2.23) each.
Pipeline
A number of other firms are also looking to enter the market. In February 2016 textiles and clothing manufacturer Maille Club submitted an application to list on the alternative exchange, having significantly raised its capital by TD1.33m (€558,000) the previous October. Local underwriter AMI Assurances said in May 2016 that it was also considering a listing, saying that it had recently distributed a dividend to its shareholders, which is one of the criteria to join the market. Should the company go ahead with the plans it would become the fifth insurance or reinsurance firm listed on the exchange.
Bilel Sahnoun, CEO of the BVMT, speaking to OBG in October 2016, said he hoped for around five listings to take place in 2017, including one or two large companies, one of which could be a state-backed telecoms firm. “A local brokerage is also currently preparing an application for a large listing by a private company that has the potential to raise around €65m,” he told OBG. However, Kamoun said that valuations of any new listings must take into account the market conditions, such as a current lack of liquidity.
Alternative Market
Despite possible listings on the alternative market, the small board has struggled to develop since its launch in 2007. “The alternative market has not seen much in the way of investor interest or activity and its trading conditions need to be reviewed,” Zammit told OBG, arguing that it should be reserved for institutional investors with long-term investment horizons. “Retail investors entered the market when it was launched, and then abandoned it after losing money,” she said.
This is far from unusual. Similar boards for small and medium-sized enterprises (SMEs) across the continent, such as the Alternative Securities Market in Nigeria, the Nilex in Egypt and the Growth Enterprise Market Segment in Kenya, have also faced difficulties in attracting new listings. This is part of the broader challenge of encouraging smaller firms to seek to build up their capital outside of banks.
SME Participation
The BVMT is also working in partnership with various players in the local finance industry on an initiative to encourage more SMEs to list on the exchange, Sahnoun told OBG. A core element of the Investia PME initiative is the provision of services by financial services firms involved in the process, such as brokerages and accountants, at favourable prices to SMEs looking to list. “A major constraint for SMEs is that they don’t always have the resources to cover the costs involved in listing on the bourse,” Sahnoun told OBG, adding that promising sectors as regards SME IPOs included agribusiness, manufacturing, ICT and health.
Development Plans
The bourse is also working on a range of plans to galvanise its development, including an initiative to create a Europlace-style local promotional network for the financial system that would group together local financial services companies and institutions, and help the country position itself as a regional financial services centre.
In May 2016 the BVMT also called on the government to take a number of measures to support its development, including improved tax incentives for IPOs, greater use of capital markets for public financing and stake sales of publicly owned firms in need of new financing or restructuring via the bourse. The BVMT is particularly keen for authorities to list a share in one of the telecoms operators in which the government holds a stake, as no major operators are currently listed on the exchange. “The market suffers from fairly weak capitalisation and a shortage of paper, and a telecoms listing would help a lot in this respect,” Sahnoun told OBG.
Such a move may soon be forthcoming; in May 2016 Noomane Fehri, then-minister for communication technologies and digital economy, said that the state intended to list Tunisie Telecom (TT) – in which it owns a 65% stake – on the exchange, while maintaining overall control of the company.
The company had previously taken steps towards listing on both the BVMT and Euronext in 2010, but later cancelled plans in the wake of the country’s revolution the following year. Nevertheless, Sahnoun told OBG that the listing of TT appeared to be high on the agenda of the new government, and that he hoped it would occur in 2017.
Potential To Go Public
Sahnoun said that the institution would also like to see the government disengage from other sectors in which a competitive domestic market already exists, such as banking and fuel retail. “The government has a stake in 12 banks, which is not necessary for the functioning of the market,” Sahnoun told OBG. The state’s exit from such firms could help with improving their competitiveness and boost public finances, while also playing a part in developing the market.
In addition to long-standing shareholdings in firms such as TT, the government holds stakes in a number of companies linked to former president Zine El Abidine Ben Ali and his family that it confiscated following the 2011 revolution. Some of these were privatised in the aftermath of the uprising but there have been no major sales since 2012. Kamoun said that the firms included attractive companies such as Islamic bank Banque Zitouna and telecoms operators.
Fiscal incentives have been offered to encourage listings by private firms. Kamoun told OBG that the 2017 Financial Law reduced corporate tax rates for companies that list on the exchange from 20% to 15%. However, she did not believe this would have a major impact on offerings. “Large groups already use a range of available tax optimisation strategies, while the smaller companies are often put off by increased requirements for transparency,” Kamoun told OBG.
Product Offering
The market is currently limited to basic conventional products, with, as an example, no derivative markets in place. Observers say that there is largely no need for the introduction of complex or sophisticated new products given the current dominance of the market by retail investors.
However, Sahnoun told OBG that the BVMT is working on the possible launch of exchange-traded funds (ETFs), a form of investment fund usually based around an index that can be traded on exchanges like a share. These instruments are particularly popular with retail investors due to their ability to provide diversification while generally involving much lower costs than traditional managed mutual funds, which suggests that they could be well received in the local investment arena. “The current lack of market-making activity is an obstacle to the development of ETFs, but we are working on ways to facilitate their introduction,” Sahnoun said.
Brokerage Market
There were 23 stock brokerages active in Tunisia in 2015, according to the BVMT. However, only a small number of these dominated the market, leaving many with very small-scale activity. The five largest firms – MAC SA, Tunisie Valeurs, BNA Capitaux, Attijari Bank and Amen Invest – accounted for 73.2% of transactions, or TD1bn (€428.8m), according to BVMT figures.
“With 23 brokerages and daily volumes of around TD5m (€2.1m), there is not a great deal of business to go round,” Neifer said. However, Zammit told OBG that despite this, consolidation of the market does not currently appear to be on the horizon, as many brokerages are units of local banks that are content to retain a small presence in the market.
Ownership
The ownership of the BVMT is currently equally divided between each of the country’s brokerages, but there have been recent indications that this could change soon. In May 2016 Slim Chaker, the then-minister of finance, said that he was open to a possible demutualisation of the institution, under which its ownership would be opened up to other institutional and private investors.
“Apart from its benefits in terms of governance, competitiveness and innovation, the primary impact of demutualisation would be greater involvement by institutional investors, particularly banks and insurance companies,” MAC SA’s Ben Chaabane told OBG.
However, Chaker left his position at the ministry following a change of government in August 2016, and in October Sahnoun told OBG that such a move was not on the agenda for the time being.
Corporate Bond Market
The country’s primary corporate bond market is relatively well developed, with 144 instruments listed as of the end of 2015 (up from 123 a year earlier). Bonds are generally issued by financial institutions – mostly banks and leasing firms – with a total subscription value of TD3.27bn (€1.4bn). That same year saw 18 new bonds introduced to the market, with a combined value of TD617.1m (€264.6m), up 53% from in 2014.
However, the secondary market is not very active, with total trading value of TD144.2m (€61.8m) in 2015, though this was up 13% from 2014. Sahnoun told OBG that the BVMT had been trying to encourage the development of bond trading by cutting commissions on transactions in February 2016, but that what trading does occur in the market still largely takes place on an over-the-counter basis.
Sharia-Compliant Debt
In October 2016 Chedly Ayari, governor of Tunisia’s central bank, said that the authorities planned to raise around TD1bn (€428.8m) worth of sharia-compliant debt, and that he hoped the country would start to tap Islamic markets in early 2017, adding that sukuk (Islamic bonds) could be especially promising with regard to raising financing for infrastructure construction. At the end of January 2017 then-minister of finance, Lamia Zribi, told international media that the government is planning for a $500m sukuk issuance by the end of the year. The private sector is also working to support this potential issue. In February 2016 Banque Zitouna announced that it had developed a new model for sovereign sukuk, with support from the Islamic Development Bank. In addition to plans for a sovereign sukuk, there is potential for the emergence of a Tunisian market in corporate sukuk, which are authorised under 2013 legislation.
In November 2016 Ayari suggested that Islamic debt instruments – in addition to raising funds for the government – could be used by Tunisian banks, which he said were in growing need of both mediumand long-term financing, adding that the central bank was working on developing Islamic debt as a local financing option (see analysis).
The country has a growing Islamic finance sector, including three Islamic banks and three takaful (Islamic insurance) providers, which are potential candidates for the issue of such instruments. In November 2016 the central bank announced that it was studying an application for the establishment of another Islamic bank (see Banking chapter).
Outlook
The extent of economic growth, successful efforts to attract increased financing and investment, and whether or not the government goes ahead with previously suggested listings of major state-owned firms will strongly influence market performance and development going forward.
Even without multiple significant listings, plans to launch new products and develop Tunisia’s status as a financial centre should help to underpin the continued healthy functioning of capital markets in the country for the foreseeable future.
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