Curmi & Partners

Raising Capital in 2023: The Calm Before the Storm

By Beppe Jaccarini

The first three quarters of 2023 were marked by a cautious approach to capital raising across global financial markets, including the Malta Stock Exchange (MSE). Prospective issuers were in a state of adaptation, as they grappled with a new interest rate environment that had been instated by central banks worldwide. This initial uncertainty led to a postponement of capital raising activities, but as we move into the fourth quarter of the year, there is a sense of optimism around what is to come, both on a global scale and particularly within Malta. Moreover, this positive trend is expected to continue into 2024 supported by a renewed level of appetite for capital raising from Maltese issuers.

Understanding the Initial Slowdown

The initial reluctance to engage in capital raising activities during the first three quarters of 2023 can be attributed to one dominant and underlying factor – the evolving interest rate landscape. Central banks globally were in the process of adjusting interest rates, moving away from the historically low rates that had characterized the previous years. This transition created a degree of uncertainty among issuers, who grew wary of borrowing at potentially higher costs. Consequently, Maltese companies eyeing the MSE as a platform for capital raising became acutely aware of the significance of timing, leading to a temporary postponement of their funding plans.

The European Central Bank (ECB) has lifted interest rates nine times in a row over the past year in an effort to curb persistently high inflation which was initially triggered by Russia’s war in Ukraine that caused food and energy prices to surge. In contrast to years of near-zero and negative interest rates in the euro area, the key interest rate in the eurozone now stands at 4.25%. Locally, investors are gradually adapting to this new landscape, with the Maltese Government offering new bonds to the public yielding coupon rates of 4%.

On a broader international scale, another factor that contributed to the subdued capital markets activity throughout this year was the influence of market volatility. Stock markets experienced sustained periods of volatility as investors reacted to changing interest rate expectations. This made it challenging for companies to gauge market sentiment and the optimal timing for their capital raising endeavours.

The Anticipated Rebound

Looking ahead to the remainder of 2023 and into 2024, there is a positive outlook for capital raising activities as the interest rate environment stabilizes. Central banks, following a period of rate adjustments, are expected to settle into their new interest rate regimes. This evolving stability is likely to instil a greater sense of confidence and predictability in the market, providing a firmer foundation for both issuers and investors.

Simultaneously, companies will benefit from a clearer understanding of borrowing costs, enabling them to approach capital raising activities with better strategic awareness and precision. As we progress through the final quarter of 2023, there is an anticipation of continued recovery in investor confidence, which should drive increased demand for fresh equity and debt issuances.

While locally the first three quarters of 2023 witnessed a slowdown in capital raising due to various economic market factors, the stage is set for a resurgence in the final quarter and beyond. As interest rates find stability, market sentiment improves, and the world continues its recovery from the economic challenges posed by the COVID-19 pandemic, it is anticipated that companies, both locally and abroad, will reinvigorate their capital raising strategies to fuel their pipelines of upcoming projects. This renewed enthusiasm promises to usher in a dynamic period for capital markets, promising new opportunities for issuers and investors alike.

The information presented in this commentary is solely provided for informational purposes and is not to be interpreted as investment advice, or to be used or considered as an offer or a solicitation to sell/buy or subscribe for any financial instruments, nor to constitute any advice or recommendation with respect to such financial instruments. Curmi & Partners Ltd. is a member of the Malta Stock Exchange and is licensed by the MFSA to conduct investment services business.