According to Prudentia’s TOP101 list, only 8 out of the 101 biggest companies in Estonia are listed on the Tallinn Stock Exchange. This hardly reflects a functioning capital market. So what is wrong? Is it the tax system? Probably not. Using an investment account or an Estonian OU is quite beneficial from a tax point of view with capital gains tax deferred until you take profits out. Is it the governments fault? Probably not. The IPO of the Tallinna Sadam shows a willingness to float an attractive asset in support of the local stock market. Is it the high trading fees? Definitely not. Trading Estonian shares can be done at zero fees in Swedbank and LHV. Is it the infrastructure? Probably not. The Tallinn Stock Exchange is owned by Nasdaq which we all known is one of the world leaders in the world of stock exchanges and opening a securities account and trade on internet is easy to do in all Estonian major banks. Is it lack of knowledge and interest in how to invest in stocks? Yes, this is probably one factor. Estonia does not have the culture of investing in stocks like for example, Sweden where almost 1 in 5 people own shares directly. Another reason for the immature Estonian stock exchange is the lack of growth companies. While Tallinn Stock Exchange has several solid mature dividend companies, there is an absence of innovate growth companies. Is this due to a lack of innovative companies in Estonia. Definitely not. Estonia has more unicorns per capital than any other country in the world yet the number of listed tech companies on the Tallinn Stock Exchange is zero (at least it cannot get worse). Can listing tech companies make a difference? Yes! Just play with the thought that the five Estonian made unicorns (Skype, Playtech, Transferwise, Bolt, Pipedrive) would be listed on the Tallinn Stock Exchange. Based on the latest known valuation, the value (Enterprise value) of these five companies would be EUR 15bn (assuming all but Playtech are debt free). To put this in perspective, the current market value of the companies listed on the Tallinn Stock Exchange is EUR 2.5bn. Even adding 100% of the market value as debt, the resulting EV of EUR 5bn is 3x smaller than the five unicorns. So what do I suggest? I suggest all the stakeholders (government, stock exchange) start networking with the unicorns and appeal to their nationalistic side to do a dual listing in Tallinn (not all will go public of course). I fully realize that in the event of an IPO, private equity funds wants a listing in a major venue like London or New York which makes total sense, but a dual listing should not hurt the valuation and it would be a nice token of appreciation by the founder to the motherland. Imagine what an Estonian FANG group would do to the Tallinn stock market and its ability to serve as source of capital for innovative companies.

Mattias Wallander, Founder & Analyst at Enlightresearch.net