Supporting new listings and foreign investment on Bahrain's financial markets

As is the case with many financial centres in the MENA region, the stock market in Manama faces a liquidity challenge. However, the Bahrain Bourse, backed by regulators at the Central Bank of Bahrain (CBB), is introducing measures to stimulate securities trading in the kingdom. While fewer firms in the GCC have a need to turn to bonds and stocks to raise capital than in other jurisdictions, those in charge of the bourse are keen to see it play a wider role in attracting international investment to Bahrain.

Trading Day

The drive for greater liquidity saw the Bahrain Bourse announce a raft of new policies and initiatives in 2013 and early 2014. From December 1, 2013, the market made a small but symbolic gesture by extending the trading day by 30 minutes. The bourse is now open for business from 9.30am until 1pm, from Sunday to Thursday. Although this may not make a huge difference to traders on the floor of the exchange in Manama’s Financial Harbour, the change has been made with a view to increasing opportunities to invest for brokers working in other time zones around the world. “The extended trading hours will give investors and portfolio managers in the West and European countries a longer time to trade in the securities listed at Bahrain Bourse,” said Khalifa bin Ebrahim Al Khalifa, now the bourse’s CEO, who at the time was its deputy CEO and chief operating officer. Looking east, 9.30am to 11am in Bahrain coincides with the afternoon trading session in Hong Kong.

Upgraded Platform

The Bahrain Bourse also made a significant investment in technology by upgrading its NASDAQ OMX trading platform from the Horizon platform to the X-stream system. Bahrain joined another 25 exchanges around the world using the multi-asset trading platform when it went live on July 14, 2014. Technology is also driving moves to attract more trading activity on the bourse through its Online Trading Incentive Programme. Benefits of the programme include cutting the bourse’s take on broker commissions from 20% to 15% and reducing the cap on online trades from 0.275% to 0.2% of the value of the transaction. In December 2013, the bourse announced it accepted the application of brokerage Mubasher to participate, enabling it to offer its services from Bahrain. “We are brokers looking for the most efficient way to do business in as many markets as possible,” Salim Sebbata, Mubasher Financial Services’ head of private clients, said. “If there’s enough depth in the market, then people will trade it. Our main priority is equities and so we are looking at that segment.”

Trading Borders

Mubasher Financial Services has clients across the region and Bahrain Bourse, backed by its regulator the CBB, has been making positive steps to encourage more trading, particularly within the GCC. The Offering of Securities Module of the Capital Markets Volume of the CBB Rulebook, which came into effect in January 2014, allows firms licensed in other GCC jurisdictions to trade in Bahrain. Coming a year after Saudi Arabia’s bourse opened its doors to foreign companies listed on other exchanges, this new rule may enable the kingdom to ride a fresh wave of market activity across the Gulf region. In November 2013 the Bahrain Bourse further cemented its ties with its counterpart in Riyadh by signing a memorandum of understanding (MoU) with the Tadawul, which had earlier signed another MoU with the Abu Dhabi Securities Exchange. It is hoped these GCC countries will be able to align policies, forge stronger connections and deepen trade. Bahrain Bourse’s then CEO, Fouad Rashid, said the MoU would serve as a useful instrument to help open up new business opportunities in both countries. The CEO of the Saudi Stock Exchange, Adel Saleh Al Ghamdi, said the move would “ultimately add value to market stakeholders on both platforms”.

New Listings

The exchange in Bahrain is also hoping to tap into a broader range of potential listed companies by changing its rules for listing, particularly with the kingdom’s multitude of small and medium-sized enterprises (SMEs) in mind. “SMEs could be listed on the main exchange, but with different rules,” Bahrain Bourse’s director of market control and members affairs, Ebrahim Jaffer Al Aradi, told OBG. “In order to attract closed companies to list on the exchange, we have taken profitability out of the equation. It can be hard at the moment to find companies with three or four years of profitability. If we list some companies with a stable financial position, but without profitability, we may be able to attract more businesses.”

Sector players agree the time is right to take these steps. “Transparency of SMEs is changing with the new generation of managers taking over, and that is very important because the kingdom has put infrastructure in place to support growth and development of the SME sector,” Ebrahim Nonoo, managing director and CEO of foreign exchange firm BFC Group, said.

There has been a lack of new listings over the past few years, but there are signs that the pace is picking up. There were nine IPOs across the GCC in 2013 and financial analysts and brokers are hoping to see more of this activity in Bahrain in 2014 and beyond. In September 2014 Zain Bahrain became the first firm to launch an initial public offering (IPO) since 2010, and there is talk of another launch in the works by an unnamed company operating petrol stations (see overview). The bourse wants more new blood and a broader offering to attract interest from across the region. “Zain Bahrain is not just a company, it’s a telco, which is an important sector,” said Al Aradi. “Zain Bahrain will join Batelco and that would enable us to create a telco sector index. It is very attractive to all investors, because with new technology there is room for making profit. Zain will widen the investment base.”

Driving Liquidiity

“I think it’s important to have more listings, anything that will drive more liquidity. It makes more sense to list more assets,” Sebbata told OBG. “But how can we increase liquidity? How can we attract investors? It has to be IPOs and that will surely attract investors.” The other key to building liquidity in the capital market, according to some financiers in the kingdom, would be to encourage listed companies to float a greater proportion of their shares, or for some of the larger institutional investors and sovereign funds to reduce their stakes in order to tempt more buyers into the market. They argue this would give smaller investors the opportunity to share in the success of some of the listed companies.

Developing an equities market with healthy fundamentals remains a cornerstone of Bahrain’s long-term economic development plan, Vision 2030. There are certainly promising signs of an uptick in activity and confidence in 2014, both in Bahrain and across the GCC region as a whole, and the IPOs recently launched or rumoured to be in the pipeline may prove to be the spark that ignites even more activity. It is clear that this is the vision held by the exchange’s Al Aradi. “I believe it is very important for a healthy economy to have an efficient capital market. The capital market is a mirror of the nation’s economy. In a healthy economy you should be seeing healthy companies. If you would like to see the economy, then look to the bourse.”