Financial market utilization among Latvian public companies is expected to increase, predicted industry authorities.
Riga, Latvia - A series of announcements and discussions have emerged in the Latvian business community, centering around the potential benefits of public companies issuing bonds and listing shares on the stock exchange.
Jūlija Bistrova, an associate professor at Riga Technical University, has positively assessed the announcement of Rīgas ūdens, Latvia's water utility company, launching a bond issue. Bistrova, who also emphasizes the success of the Tallina Vesi, or Tallinn water, company in Estonia, which is listed on the Tallinn Stock Exchange, believes that such moves can enhance capital access for these companies, supporting growth and strategic investments.
Andris Grafs, the Vice President and Head of the Baltic Corporate Governance Institute in Latvia, has underscored the need to activate the listing of shares of state-owned companies on the stock exchange. Grafs believes that this could facilitate the mobilization of private capital to meet medium- and long-term spending and investment needs, including in sectors such as energy and defense.
However, experts caution that issuing bonds and listing shares come with their own set of risks. These include credit risk and default risk for investors, market volatility, hedging risks, and the need for companies to maintain strong creditworthiness to attract investment.
In a positive development, Jūlija Bistrova notes that the bond market in Latvia is experiencing a breakthrough and believes that in the future, several more companies will take a similar step, contributing to the faster development of the capital market. One such company that may consider listing shares in the future is Rīgas ūdens, according to Bistrova.
Uldis Cērps, head of the Financial Sector Association, welcomes the launch of Rīgas ūdens on the bond market and suggests that the entry of municipalities and state-owned enterprises into the capital market can further promote its development. Cērps also identifies three reasons for the lack of offers to invest: legal restrictions on privatization, concerns from the privatization of the 1990s, and the need for clarity on how the income from share sales will be used.
The Latvian economy has a substantial local investor base, with over a billion euros in the third-level pension fund and more than eight billion in second-level pensions, as well as savings in banks. If state-owned companies are listed on the stock exchange, pension funds would have the opportunity to invest more in the Latvian economy, according to Grafs.
However, Cērps suggests that stating where the funds from the sale of shares in state-owned companies will be used could facilitate political decisions. He believes that the political system has changed significantly since the 1990s, reducing the risk of companies not being privatized in the best way for taxpayers.
Despite these positive developments, challenges remain. The capital gains tax in Latvia, which was increased last year, is a slowing factor and does not stimulate investors to invest more, according to Bistrova. Nonetheless, experts remain optimistic about the potential benefits that issuing bonds and listing shares can bring to Latvian public companies, helping them address structural economic challenges, improve energy security and industrialization, and navigate the complex macroeconomic environment.
- Jūlija Bistrova, an associate professor at Riga Technical University, believes that the success of Tallina Vesi, a water company listed on the Tallinn Stock Exchange in Estonia, demonstrates the potential advantages for public companies to issue bonds and list shares on the stock exchange, such as enhancing capital access for growth and strategic investments.
- Andris Grafs, the Vice President and Head of the Baltic Corporate Governance Institute in Latvia, advocates for activating the listing of shares of state-owned companies on the stock exchange, as it could mobilize private capital to meet medium- and long-term spending and investment needs in various sectors, like energy and defense.
- Uldis Cērps, head of the Financial Sector Association, suggests that the proceeds from the sale of shares in state-owned companies could be used to facilitate political decisions, as the political system has changed significantly since the 1990s, reducing the risk of companies not being privatized in the best way for taxpayers.
- Experts caution that issuing bonds and listing shares come with their own set of risks, including credit risk and default risk, market volatility, hedging risks, and the need for companies to maintain strong creditworthiness to attract investment in the complex macroeconomic environment.
