A series of IPOs of large state-owned companies are expected on the Belgrade Stock Exchange (Belex) in the coming years, which should reactivate the Serbian capital market, the exchange’s CEO Siniša Krneta said in a statement. interview with bne IntelliNews in Belgrade.

Serbia is one of the largest economies in South East Europe, with a significant number of large companies, both public and private, but stock market activity does not match. However, this may change in the coming years after two key events in 2021: the government’s adoption of a capital markets development strategy and the Athens Stock Exchange’s acquisition of a 10. 24% in Belex.

According to Krneta, the problems currently facing the stock exchange date back to mistakes made during the privatizations of the early post-socialist years. Following the massive privatizations, more than 2,000 issuers came to the stock exchange, but not to raise capital; instead, the majority owners of former state-owned companies took those companies to the stock exchange in order to consolidate their control and eliminate minority shareholders. The last step was the removal of these companies from the market – where they would no longer need to comply with strict reporting rules – which culminated in a mass exodus in 2008.

Coinciding with the onset of the international economic crisis, the consequences for the Belgrade Stock Exchange were devastating. Until 2008, about 60-70% of buy-side investors were foreign, but that changed completely once the big companies delisted.

Public enterprises will become icebreakers

The stock market has therefore played a minimal role in the economic development of Serbia over the past 14 years. However, that is changing.

Following the adoption of the Capital Markets Development Strategy, the Serbian Parliament adopted a new law on capital markets in accordance with the EU MIFID 2 directive. Belex expects full implementation by early 2023, which Krneta says will allow “EU investors to recognize the Serbian capital market not as a regulatory exotic market, but as a market aligned with MIFID 2”.

More importantly, “For the first time, the government has declared its intention to privatize some of the companies it owns through IPOs. Not only will this bring new public companies into the market,” says Krneta, but it “will show what the capital market is all about. – primarily to raise capital, thereby providing the local investment community with an opportunity to invest.

So far, there has been significant political resistance to the restructuring or privatization of public enterprises (EPs), which are large employers in the country. But with the government – the main shareholder of these companies – behind the strategy, privatizations should actually take place. “History has shown that it is very difficult to obtain [SOEs] on the exchange,” says Krneta. “What is different at the moment is that we have a national strategy adopted by the government, and within that strategy there is the IPO of public companies. Their IPO is a major pillar of the strategy.

Krneta is optimistic that the IPOs of major state-owned enterprises will act as an “icebreaker” to create a pathway for private companies to list on the exchange. He refers to data showing that there is a “significant hunger” for investment opportunities among Serbian institutions and retail investors. the capital market is on the move, and our real medium-term target is today’s private companies. Serbia is rich with a huge list of candidates among powerful private companies with businesses spread across the region.

Many of their top executives, Krneta points out, have already publicly stated their goal of going public at some point in the future, usually mentioning Vienna, Warsaw or London. However, he says, “We strongly believe that such a business could be executed with much more luck and success locally where they are very well established and recognized by their end users, consumers of their services or goods.”

A quest of a lifetime

Belex is one of the oldest stock exchanges in Central Europe, having been established in 1894. It continued to operate even in the early years of World War II when Serbia was attacked by Nazi Germany, although was closed under the socialist regime. regime in 1945. Although it was restored in 1989, little happened in the last decade of the 20th century due to international sanctions.

Krneta has been running the exchange since mid-2015. He started his career as a futures trader, with experience in Chicago, London, Frankfurt and other international financial centers, then was invited to join the stock exchange in 2001, a year after democratic changes in Serbia. For the past 21 years, says Krneta, he has dedicated his professional life to the success of the Belgrade Stock Exchange.

Speaking on behalf of his colleagues in the exchange, he recounts bne IntelliNews“We believe it is worth investing our professional lives in trying to develop the stock market in Serbia. It’s hard, it’s long, it’s probably the work of a lifetime, but it’s worth committing our professional lives to such a monumental goal.

Next steps

In the summer of 2021, the Athens Stock Exchange acquired 10% of the Belgrade Stock Exchange. With the adoption of the national capital market development strategy, says Krneta, “these elements combined create a kind of beginning and – I hope – a beneficial wind in the back for the Belgrade Stock Exchange, even if it will be necessary to wait a little to see the first effects.

“The Athens Stock Exchange is a unique partner that can be not only a service provider for us, but also a financial partner. Joining forces in this globalized world with such an exchange can be a source of technology and know-how transfer,” he added.

The stock deal was followed by an agreement between the exchanges to migrate the Belex trading platform to the Athens Stock Exchange trading platform. When completed, this will create a common trading platform for trading Greece, Cyprus and now Serbia.

Also in 2022, a new set of bylaws is expected to be established by the securities commission. Third, Belex works with financial clearinghouses to bring completely new (for Serbia) financial instruments to the market, starting with exchange-traded funds (ETFs).

Another thing the exchange plans to do is enable optional Initial Coin Offerings (ICOs) for startups. He has already selected a blockchain-based technology partner, and the two are now working together to explore the possibilities created by Serbian digital asset law.

“We aim to provide the opportunity for startup tokenization and a secondary investment token market for market participants,” Krneta says. “It will give them the opportunity to raise capital, not through the conventional capital market, but through a newly established digital environment.” He points out that blockchain is one of the main strengths of the Belgrade-Novi Sad technology cluster.

Sustainable development

Environmental and social governance (ESG) is increasingly important for investors, and while the performance of the Serbian capital market is lagging behind in terms of volume, Krneta says it is proud of its efforts to join the initiative of sustainable UN fellowship and its gender balance. The composition of the board of directors of the stock exchange, for example, is 60% women. In the field of environmental sustainability, Belex has organized training for climate reporting by public companies and aims to make it an obligation for all companies wishing to be listed on the stock exchange.

“We are small but we try to position ourselves as the showcase that every movement towards respecting gender equality as well as fighting climate change is worth making,” says Krneta. “It’s about respecting humanity and respecting this planet.”

It is also hoped that companies will start coming to the exchange with green bonds – a way for companies still reluctant to go public with shares to test the waters. Krneta notes the large number of private companies that are investing in the green sector, including those in industries like coal that are “investing heavily in greening their dirty industries.”

Serbia issued its first green Eurobond in September 2021 to fund environmental protection and climate change mitigation projects.