On Tuesday, 13 June, the Cabinet of Ministers (MK) took an important step in promoting the development of the national economy, by examining the information report on the creation and financing of an initial public offerings fund, or IPO fund, for small and medium Baltic enterprises (SMEs). This step envisages the creation of financial instruments that will ensure that small and medium-sized enterprises can access funds, and will help promote the activation of the financial market in the Baltic states.
“In the declaration of the government, we clearly emphasised the need to develop a competitive financial market by extending companies’ access to financing and by expanding investment opportunities. The government is determined to pursue the goal of stock market capitalisation in the amount of at least 9% of the GDP by 2027, and this is the next big step we can take. The IPO fund will contribute to the development of the business sector, by ensuring that small and medium-sized enterprises have access to financing, and by fostering innovation, growth, and job-creation. This will create a favourable environment for the growth of companies and will contribute to the competitiveness of the Baltic region,” affirms Minister of Finance Arvils Ašeradens.
To increase the capitalisation of the stock market and promote capital raising and the entry of new issuers from the private sector into the stock exchange, it is critical to maintain the listing support programme for small and medium-sized companies, as well as to establish an IPO fund as a long-term market investor. At the same time, it should be noted that significant preparatory work has been carried out in recent years in order to promote the efficient management of state-owned capital companies, both in terms of setting development goals and optimal capital structure, and profiting from financial market opportunities.
The fund will provide financing for the initial listing of SMEs and their inclusion in the Baltic securities market, primarily in the stock market (both in the regulated market and in the alternative market of the Multilateral Trading Facility (MTF) in the Nasdaq Baltic Stock Exchanges). The fund will act as a specialised financial intermediary that will make the following investments:
- the initial public or private offerings in the Nasdaq Baltic Stock Exchanges;
- investment in the pre-offering phase, with the clear intention to list the company on the stock exchange within a suitable period of time (that is, within approximately 12–24 months).
The fund will play the role of an “anchor investor” and facilitate investments in the companies by institutional and other private investors. The fund will also address a market shortcoming – the insufficient number of companies that use the stock exchange funds.
The fund will focus on profitable SMEs which have a company value ranging from approximately 5 to 100 million euro. According to the analysis carried out as part of the fund's development project, potential applicants operate in the IT and manufacturing industries, biotechnology, food industry, and other high-value-added sectors. IPO, or initial public offering, is the initial listing of shares to the public, and a public offering to the investors, which is usually followed by the initial listing of the company's shares on the stock exchange. It is an opportunity for citizens to become investors and earn long-term profits as shareholders of this company.
The creation and financing of the initial public offering fund for Baltic SMEs is one of the tasks to be carried out in accordance with the informative report on the further development of the Latvian financial market, approved on 16 May 2023. Its goal is to determine the medium-term development and directions of the financial market in order to promote the availability of financing for economic growth and transformation, as well as to provide investment opportunities while ensuring a high level of investor protection.
The fund will be financed with a total amount of 20 million euro. The financing will be provided from the profits of the finance institution Altum, these profits being included in the retained earnings, as well as from the state budget financing in the share capital of Altum. To establish the Fund, Altum plans to sign a cooperation agreement and a limited partnership agreement with UAB Investicijų ir verslo garantijos (INVEGA), and together take the necessary steps to create the fund, as well as to select a fund manager.
Such funds are already successfully operating in several countries of the world, such as Finland, South Korea, and elsewhere.
In accordance with the action plan of the government, the Cabinet of Ministers approved this measure to promote the development of enterprises and raise capital.
See the report: https://tapportals.mk.gov.lv/legal_acts/3068e22c-5ef2-419e-829d-4e551aa3726f