Family-Owned Companies "Not Interested" in Issuing Preferred Shares
A survey conducted by BSEC, the securitization subsidiary of Banque BEMO on the potential
appeal of preferred shares for non- financial firms in Lebanon indicated that 48% of surveyed firms are willing to open their capital to new investors and that they would be interest in using preferred shares as a financing instrument, as reported by lebanon This Week, Byblos Bank newsletter.
In parallel, 33% of surveyed companies declared that they have no interest in preferred shares; while 19% of firms do not wish to open their capital, but would change their decision if they could issue preferred shares without voting rights. The survey covered a sample of 42 non-banking Lebanese joint stock companies.
The survey said that most of the companies willing to open their capital are small, as 40% of them have annual turnover of less than $5m and 10% have turnover of between $5m and $15m. It added that 40% of firms that are willing to open their capital are at an early stage of development, as 25% of them are start ups, 10% are at the initial expansion stage, and 5% are at the seed capital stage. It added that more mature companies in this category are seeking to expand and have already a tight balance sheet.
Further, it said that compa- nies from the information technology, Internet and telecommunications sectors account for 25% of firms that are willing to open their capital to new investors; followed trading firms with 15% of the total, conglomerates with significant operations in industry (10%) and utilities (5%); while 20% of firms operate in capital intensive sectors. The survey also showed that most of firms are willing to open their capital to strategic or institutional investors, as their main concern is to maintain a balanced capital structure or to facilitate a merger or acquisition. The firms support preferred shares legislation that favor contractual freedom regarding their political and eco- nomic rights.
In parallel, the survey said that 79% of companies that are not interest in issuing preferred shares are family owned. It said that 50% of these companies generate annual sales exceeding $50m and 35% of them have annual sales below $15m.
It added that firms from the trade sector represent 36% of companies that have no interest in issuing preferred shares, and companies in the services sector account for 43% of the total. The survey pointed out that large companies with no interest in preferred shares have easy access to cap- ital through bank facilities, shareholders' loans and equity, which are sufficient to finance future projects. It added that smaller com- panies consider that preferred shares are not adapted to their business model.
The third category consists of firms that do not wish to open their capital, but would change their decision if they could issue preferred shares without voting rights. The survey pointed out that most the firms operate in sectors with limited financing needs, and 75% of them have sales turnover exceeding $50m. It noted that 88% of companies are at a mature stage. Also, 50% of these companies are family owned, 38% are closely held and 13% are widely-held firms. The survey added that this category of firms believes that legis- lation about preferred shares should not be restrictive and should favor contractual freedom with respect to the shares' amount, maturity, dividend pay out and convertibility.
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