Bahrain: Taking stock

The Kingdom’s stock exchange is to see its first new listing for 2013, with a green light for telecommunications firm Zain Bahrain to launch an initial public offering (IPO). Analysts are likely to follow the float with keen interest as it could serve as an indicator of how far confidence has returned to the Kingdom’s capital markets.

On April 7 the Cabinet gave its approval for Zain Bahrain to offer 15% of its shares on the Bahrain Bourse (BHB). Announcing the decision, Sameera Rajab, the government spokesperson and minister of state for information affairs, said the approval for the listing reflected the improved economic situation. “In the past, a similar request had been put on the back burner due to the global financial meltdown, and now the government has decided to give a fair chance to Zain Bahrain to offer its shares publicly,” she said.

Sheikh Ahmed bin Ali Abdulla Al Khalifa, chairman of Zain Bahrain, said the approval of the cabinet for the IPO was both a sign of the ongoing liberalisation of the Kingdom’s telecommunications sector and the warmer economic climate. “The cabinet decision is also a signal that the time is right for an IPO and the market is ready,” he said in a statement issued on April 9.

First mooted in 2008, Zain Bahrain’s IPO has been put off six times, as it has been a victim of weakened market sentiment. Under its initial licence agreement, the company was required to conduct a partial IPO, a condition it is now set to meet almost 10 years after entering the market. Details have yet to be released as to the timing of the IPO, the expected valuation of the float or which banks or financial consultancies will underwrite the issue.

There has been little incentive for companies to list of late, as the BHB performance was weak in 2012, falling 7% over the course of the year. However, the BHB has clawed back some of these losses, with the all-share index marginally up in the first quarter of 2013, and market capitalisation breaking through the $16bn mark for the first time since the middle of last year.

While this is well short of the more than $30bn worth of capitalisation on the market in the second quarter of 2008, just before the global financial crisis took hold, the first-quarter figures do suggest a rise in confidence,. Even so, trading overall remained thin for the 47 listed firms, with daily volumes from April 2012-April 2013 averaging 3.4m, according to Reuters data.

While the exchange has implemented a number of measures to encourage new listings over the past two years, including easing requirements for launching a float by family and other closed companies, interest has been limited. Part of the problem is that many privately held firms in Bahrain are wary of the risks that are involved with taking a company public, a factor acknowledged by Fawzi Ahmed Kanoo, deputy chairman of leading mixed-industrial group Yusuf Bin Ahmed Kanoo, in an interview with online publisher Marcopolis. Kanoo said that while many local businesses were reluctant to make a public offering, taking such a step in the changing economic climate would increasingly be seen as a sound move.

While he did not suggest that there were plans to take the company public, Kanoo said such a move was almost inevitable if the company wished to expand its operations. “I think the future for big companies like us and others is to sell part of the company,” he said.

How soon that future comes will depend to some degree on how well the Kingdom’s economy rebounds and, more immediately, on the degree of success of the Zain Bahrain IPO, which could act as a bellwether for other firms looking to explore the possible opportunities of public trading.