Sunil Benimadhu, Chief Executive Officer of the Stock Exchange of Mauritius explains SEM’s initiative to launch new indices and expresses satisfaction that one out of five workers holds shares in listed companies, a figure which compares favourably with some European countries.

The SEM will innovate by launching two new in- dices on the 12th of September. What is the purpose of this new initiative?

In the wake of SEM’s campaign to internationalise its platform post-2008, a number of Category 1 Global Business companies (GBC1), and international products have been listed on the SEM. However, given that some of these GBC1 companies did not initially meet all of SEM’s free-float requirements, they were not included in the SEMDEX. Over time, some of these companies have not only evolved to meet SEM’s free-float requirements but have also significantly grown in size and been involved in appreciable trading activities. The time has, therefore, come to include these companies in SEM’s indices to track their performances.

Consequently, the SEM will, on the 12th of September, launch a new index, SEM All Share Index (SEM-ASI), which will include all the companies listed on the Official Market. It will meet SEM’s free-float requirements, including both rupee-denominated companies as well as foreign-currency denominated companies, like the GBC1 companies.

 On the 12 th of September, we will also launch a SEMVWAP index on the Official Market which will be based on the Volume Weighted Average Price (VWAP) of ordinary shares which are constituents of SEM-ASI. Presently, the calculations of market indices are based on the last traded price of securities. These indices are sometimes influenced by small volume transactions. The SEM Volume Weighed Average Price Index (VWAP) is expected to partially neutralize such fluctuations.

Can you explain how the launch of the new Index, SEM-ASI, will strengthen the SEM’s internationalisation strategy?

 The addition of the Global Business companies to this new index will increase the Official Market’s capitalisation by some Rs 105 billion, representing a 48% increase on its current level. The market capitalisation of the Official Market will probably cross the Rs 320 billion mark. SEM-ASI will, therefore, give a better reflection of our market’s effective size, enhance our market capitalisation to Gross Domestic Product (GDP) ratio and improve the profile of Mauritius as an International Financial Centre.

Moreover, this initiative will consolidate the synergistic links between the Global Business Sector and the SEM, ensure a better integration of the activities conducted within the financial services sector and also improve the substance of activities conducted in the Global Business Sector.

 Over time, if the current wave of new listings of GBC1 and international companies continues, the overall market capitalisation of the SEM is expected to exceed the country’s GDP, enabling thereby the SEM to join the select league of emerging stock exchanges whose market capitalisation exceed their respective countries’ GDP.

Are you satisfied with the positioning of the SEM as a leading regional exchange within this part of the world?

 At the level of the SEM, our guiding philosophy is not to be overawed by what has been achieved, but to always look for the next improvement that we can bring to the exchange ecosystem, however small that improvement may be. To answer your question, the SEM has made great strides in our positioning process within the region, has obtained three times “the Most Innovative African Stock Exchange Award” by Africa Investor, but we believe that we are only at the beginning of what appears to be a challenging and yet potentially very enticing journey.

The internationalisation of our platform is in full swing, our multi-currency capital-raising listing, trading and settlement infrastructure is well-established and tested, our strategic shift from an equity-centric domestic exchange to a multi-asset class international exchange is gaining ground and our active involvement and that of the Central Depository System (CDS) in regional and global undertakings is gathering momentum.

Since 2009, we have listed 93 new products on the Official Market and the DEM. During the same period, Rs 138 billion has been raised by listed companies through the issue of shares and fixed-income instruments, out of which Rs 106 billion have been raised by international and GBC companies and Rs 32 billion by local companies to deleverage and restructure their capital, fund their expansion and create jobs.

Yet, we do realize that we still have a number of key challenges that we need to tackle, amongst which boosting liquidity, attracting new investors and widening the scope of products remain the top of our priorities. The liquidity factor is not unique to the Stock Exchange of Mauritius’ framework but also touches the other sub-sectors of our financial services sector, including the banking sector, due to the structural constraints of a small economy with a restricted internal market. If an investor tries to acquire USD 20 million on the FX market in Mauritius, which by international standards is a very small amount, he may move the USD/rupee conversion rate because of the liquidity constraints that characterise our local FX market.

This is why we need to open up, attract more international players to our jurisdiction and leverage on the advantages of Mauritius to service the region and beyond. Internationalisation in every segment of our financial services sector, including capital markets, is the only way forward if we want to succeed as an international financial centre.

The advent of the stock exchange in 1989 aimed, among other objectives, at democratising share ownership amongst a larger number of Mauritians. After 27 years, would you say that this objective has been fulfilled?

 Based on statistics available at the CDS, about 100,000 Mauritians today hold shares in the companies listed on the two platforms operated by the SEM, namely the Official Market and the Development & Enterprise Market. Without the SEM, the majority of these people would not have had access to the share ownership structure of many of the flagship companies that constitute the business landscape of our country. They would not have been able to participate in the growth of these companies over time and have a share of their success. So I think the SEM has brought its contribution to the democratisation process of the Mauritian economy.

However, it is important that more Mauritians are sensitized to the working of the Stock Exchange, are made aware of the risks and potential returns of a stock exchange investment. We should aim at doubling this figure over the next five to eight years. In relative terms, 20% of the working population in Mauritius hold shares in listed companies. This relative figure compares well with other countries with a much longer history of stock exchange activities like Germany and India, for example, where only 12% and 6% of the working population invest on the stock market respectively.

The latest budgetary measures focus on the opening of the Mauritius international financial centre to new international players. How do you view this positioning process?

 A common thread which has underpinned the success of well-known international financial centres like London, Hong Kong and Singapore, amongst others, has been their ability to attract international players and foreign talent to their jurisdiction. To take our financial services sector to the next stage of its development, it is evident that we will not only need to offer higher value-added services from our current list of financial services offerings, but we will also need to scale up our activities to introduce new services and embrace new activities.

In my view, this transformational change can only be achieved if we successfully attract international players to our jurisdiction, leverage on their know-how, high value-added service offerings and their market reach to position Mauritius as a sophisticated financial centre which offers a broad spectrum of financial products.

To this end, I think it is important to market the incentives mentioned in the Budget to attract new international players to our jurisdiction. In my view, South Africa should be the first target market. If we succeed in attracting asset managers, wealth managers and other service providers from South Africa to relocate part of their activities to Mauritius to service the wider continental needs, it will be easier to extend the marketing campaign to other sources of high-end service providers.

I emphasize, once again, that our future will greatly depend on our ability to internationalize our services in all sectors of activity. At the level of the SEM, we had already realized the importance of growing our activities beyond the narrow frontiers of a small island economy back in 2007, hence our decision to link up with international exchanges like the JSE (Johannesburg Stock Exchange) to position Mauritius as a trading and risk-mitigation platform for Africa-related investments. Unfortunately, we could not muster all the necessary approvals.