How Tallinn Sadama's IPO Transformed the Capital Markets

Tallinn Sadama's IPO Experience and Impact on Capital Markets

• Tallinn Sadama is a landlord port that provides services to cargo and passenger operators, as well as operates a domestic ferry service and an icebreaker.

• The company was listed on the Thailand stock exchange on June 13, 2018, with the goal of boosting local capital markets, creating investment opportunities for domestic pension funds, and attracting international investors.

• To achieve these goals, the company aimed to improve transparency, efficiency, and corporate covenants.

• During the IPO, Tallinn Sadama successfully attracted three Estonian pension funds and three private investment funds, as well as 14,000 retail investors.

• The listing also led to a 32% increase in the turnover of the Thailand stock exchange in the first 12 months.

• Being listed on the stock market increased the focus on quality financial reporting, two-way interaction with investors, and corporate image, including corporate social responsibility and green activities.

• However, the company expressed a slight decrease in the share of international investors over the years.

• The CFO emphasized the need for transparency, openness, honesty, and responsibility when transitioning to the stock exchange, and encouraged other smaller companies to consider going public.

Tallinn Sadama's IPO Experience and Impact on Capital Markets

Assessment of the Regulatory Burden in Capital Markets

• The regulatory burden is an important factor when considering participation in capital markets.

• The company needs to comply with the requirements of the stock market when issuing bonds, which adds to the documentation burden.

• Preparing a prospectus for bond listing is a necessary step, which increases the effort required for financing via bonds.

• Bank financing is still more flexible compared to financing via bonds, contributing to the decision to use traditional lending facilities.

• The pricing for bank financing and financing via bonds is considered to be quite similar.

• The visibility of a listed company to potential investors and financiers increases, providing new opportunities for financing.

• Even though there are costs and heavy preparation involved, the benefits of raising capital, reputation enhancement, and deepening cooperation with investors outweigh the regulatory burden.

• An adequate regulatory environment is essential to protect the rights of savers and minority investors, but it should not introduce difficult-to-justify expenses that hinder participation in capital markets.

Assessment of the Regulatory Burden in Capital Markets

Introducing CMDAF and Its Potential Benefits for Issuers

• Hello, I'm Kushan Zarins, and I am involved with CMDAF. CMDAF stands for Capital Market Disclosure Analysis Framework. This project aims to enhance the quality and efficiency of the disclosure process for companies involved in capital markets.

• The CMDAF project focuses on developing a framework that leverages technology and data analysis to streamline and improve the disclosure process for issuers.

• By utilizing advanced technologies such as artificial intelligence and data analytics, CMDAF seeks to create a more standardized and transparent disclosure process, enabling issuers to effectively communicate with investors and other stakeholders.

• One of the key goals of CMDAF is to reduce the burden on companies when it comes to compliance and reporting requirements, ultimately making the capital market participation more accessible and attractive for potential issuers.

• CMDAF also aims to provide valuable insights and analytics to issuers, empowering them to make informed decisions regarding their disclosure practices and overall communication with the market.

Introducing CMDAF and Its Potential Benefits for Issuers

Introducing the Baltic SME IPO Fund

• The Baltic SME IPO Fund is an initiative launched in 2019 at the request of three Baltic governments. Its primary goal is to foster SME and midcap access to finance and facilitate the development of Baltic capital markets.

• The current design stage of the initiative is funded by the European Commission, implemented by the European Bank for Reconstruction and Development, and executed by a team comprised of KPMG, Kilozoolo, and LHV Nevershed. The core project leads are actively involved in driving the initiative forward.

• The official beneficiaries of the project are the three Baltic Ministries of Finance, indicating strong government support for developing the capital market in the region. The initiative aims to add 25 to 30 new emittance issuers to the current list, reducing the burden on existing players to participate in every panel on this subject and allowing them to focus more on their actual business.

• The initial size of the fund is targeted to be 60 to 100 million euros, with the majority of the investment expected to come from national promotional institutions and international financial institutions, such as the European Bank for Reconstruction and Development.

• The fund will invest in two types of situations: it will look at all listings happening in the Baltics within its investment strategy range and invest up to 50 percent of each placement if the conditions are deemed favorable. Additionally, it will target pre-listing stage SME companies ready to target listing within the next 25 months.

• The fund's main selection criteria include profitable companies with reasonable growth prospects, export sales or prospects, and owners whose vision aligns with the high standards necessary for the public company role and status. Environmental, social, and governance (ESG) factors will also be taken into consideration in the selection process.

Introducing the Baltic SME IPO Fund

Corporate Governance, ESG, and Investment Approaches

• Corporate governance, transparency, treatment of minority investors, and the social and environmental aspects of ESG are important criteria considered.

• The criteria are essentially ESG plus 'Q', where 'Q' stands for quality asset at a reasonable price.

• The 10-point program's third item mentions increasing passive investments into the Latvian capital market.

• The focus of the funds will be on passive investments, implying long-term or short-term speculative investments.

• The new fund is aimed at being long term, as the market needs solid long-term investors and issuers.

• The Baltic SME IPO fund aims to trigger a cycle where more issuers attract more investors, creating a virtuous cycle.

• Investing in the Baltic small-cap segment should be longer term versus a short-term speculative approach.

• The liquidity and depth of the stock market may not be deep for small-cap issues, limiting short-term speculation opportunities.

• Long-term investment is more driven by fundamentals, allowing opportunities for investor profit.

• The Baltic fund is positioned as a strong contender for addressing market problems and is expected to attract issuers and investors in the long run.

• The success of the fund may lead to significant achievements in the next three to five years, creating a more stable capital market.

Corporate Governance, ESG, and Investment Approaches

Conclusion:

The IPO of Tallinn Sadama has not only impacted local and international investor participation but also brought attention to regulatory burden and market accessibility. This transformation sets the stage for further developments in the capital markets.

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