The Baltic region, comprising Lithuania, Latvia, and Estonia, boasts an emerging public capital market facilitated by the unified securities trading platform – the Nasdaq Baltic Stock Exchange.
Trading Platform
Each Baltic State houses one securities exchange: Nasdaq Vilnius, Nasdaq Riga, and Nasdaq Tallinn. These exchanges operate under the unified Nasdaq Baltic Exchange group and are regulated by each country’s national bank. Utilizing a standardized trading platform and a single depository, the exchanges collectively form the Baltic securities market, offering a common marketplace for trading and information dissemination to issuers and investors.
The Nasdaq Baltic Stock Exchange facilitates the trading of company shares, bonds, and treasury notes. Listings fall into two categories: the regulated market and the First North alternative market. The regulated market meets EU standards and is compliant with IFRS and ESG reporting, etc. Nasdaq First North, an internally governed market, offers a trading facility with reduced reporting requirements. It is set to target primarily smaller cap issuances.
Market Trends
By the end of the first quarter of 2024, the Nasdaq Baltic platform saw trading in the shares of 72 companies, with 19 of them listed on the Nasdaq First North market. Concerning the trading of debt securities, as of March 31, 2024, there were 103 issuances quoted, with 34 of them in the unregulated Nasdaq First North market. At the end of the first quarter of 2023, there were 75 companies’ shares quoted, with 19 of them on the Nasdaq First North market. In the debt securities segment, there were 94 issuances quoted, with 26 of them on the Nasdaq First North market. Similarly, at the end of the first quarter of 2022, there were 73 companies’ shares quoted, with 15 of them on the Nasdaq First North market. In the debt securities segment, there were 83 issuances quoted, with 18 of them on the Nasdaq First North market. A clear increase in the number of issuances is observed in the Nasdaq First North market, with financing through the capital market becoming increasingly popular among emerging enterprises in the Baltic States.
From the perspective of turnover, trading in debt securities in the first quarter of 2024 amounted to EUR 24.6 million, of which EUR 16.3 million accounted for trading in bonds listed on the Nasdaq First North market. In the first quarter of 2023, turnover in debt securities amounted to EUR 10.9 million, with EUR 2.4 million accounted for trading in bonds listed on the Nasdaq First North market. Meanwhile, in the first quarter of 2022, turnover in debt securities was EUR 9.1 million, with EUR 2.2 million accounted for trading in bonds listed on the Nasdaq First North market.
The recent significant increase in bond trading on the unregulated market signals the attractiveness of this capital-raising instrument among both debtor and investor groups. Despite market participants being accustomed to high interest rates reaching levels of 4% and above, the recently issued debt securities often feature both fixed and variable interest rate components. The variable interest rate component linked to the EURIBOR enhances the attractiveness of the instrument under current market conditions while providing flexibility for the issuer and assurance for the creditor
Experts project a positive outlook for the M&A market in the Baltics in 2024, largely driven by expectations of interest rate reductions. However, the challenges to achieving upward performance in M&A activities may primarily stem from Competition Councils’ skeptical stance toward business consolidation deals. Furthermore, private equity firms are facing reduced investor confidence following a highly publicized and ongoing misconduct case by one of the region’s largest PE firms.
Conclusions
Given the propensity for growing entities with robust cash flow to seek higher leverage ratios in anticipation of new business cycles, there is likely to be an increased corporate proclivity toward accessing capital markets throughout 2024. Primarily, this focus will center on debt securities, as elevated interest rates adversely impact stock valuations, rendering IPOs less appealing for financing amid current market conditions.
Recent trends indicate favorable reception toward bond issuances featuring a blend of fixed and variable interest components, resonating well with both investors and issuers. Furthermore, including an early redemption option enhances the appeal of these instruments while providing issuers with viable refinancing alternatives should market dynamics shift before maturity.
Considering these factors alongside the flexible offerings of the regulated and First North markets provided by the Nasdaq Exchange, corporate bonds are poised to emerge as the primary driver for bolstering business capital market penetration throughout 2024. However, lingering uncertainties persist regarding potential challenges posed by private debt and placements or the growing traction of peer-to-peer lending platforms to the future development of the public debt market in the Baltics.
By Dziuginta Balciune, Partner, Widen
This article was originally published in Issue 11.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
