Bahrain Bourse expects more IPOs, Reits listing in 2018

Bourse looks to fintech solutions to boost competitiveness, rival cross-listing

Khalifa Bin Ebrahim Al Khalifa, chief executive of the Bahrain Bourse says his exchange is in talks with other markets in the region on blockchain trading. Photo By Phil Weymouth for The National.

Bahrain Bourse, which had a market capitalisation of 7.4 billion dinars ($19.7 billion) as of December 10, expects two initial public offerings next year and more listings of real estate investment trust (Reits), its chief executive said.

“The bourse has continued to be resilient despite macroeconomic challenges," Shaikh Khalifa Al Khalifa said. "The reason was positive financial results from listed companies.”

There is also expected growth in fixed income issuances and Reits – one Reit listing is expected in Bahrain in the first half of next year, he said.

The dearth of IPO activity on the Bahrain bourse was due to lack of "global outreach," he said.

“We haven’t done enough and will do more of this in 2018,” Mr Al Khalifa said.

Eskan Bank Realty Income Trust (ERIT), the bourse's only Reit, listed in the fourth quarter of 2016, raising US$36.6 million.

IPO activity has been stagnant in the Middle East and North Africa (Mena) with only a few listings taking place due to weak investment sentiment. The region, however, saw five IPOs in the third quarter of 2017 – a 400 per cent increase when compared to the single IPO recorded in the same quarter last year, according to a report from consultancy EY released on Sunday.

The exchange is also in talks with other Arabian Gulf stock exchanges on plans for a pilot blockchain project that would enable cross-border trading.

"We are discussing this with some of the other exchanges but plans are still in the very early stages," said Mr Al Khalifa.

Bahrain, the smallest GCC state, has ambitions to become the ‘fintech’ hub of the Middle East and is looking to pioneering technologies to future-proof its capital markets and financial services sectors.

Mr Al Khalifa said the bourse hoped to use distributed ledger platform blockchain to enable investors to trade stocks listed on any of GCC exchanges. The move is in part a counter to the rising practice of companies cross-listing on various exchanges, which erodes individual bourses’ competitiveness, according to the chief executive.

“I hope that trend [of cross listing] will not continue,” he said. “Cross listing for the short term is beneficial for the company, but I think the solutions linked to fintech would be to link all the front end applications together so it becomes seamless for any investor to trade in any market anyway.

“This is vital for capital markets to pursue because there is so much competition [in the form of] other sources of fundraising popping up all over the world. Capital markets need to embrace fintech solutions and open their doors – if not at the exchange level, then at least for the brokers who deal directly with investors.”

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Blockchain, which underpins bitcoin and other cryptocurrencies, is an electronic transaction-processing and archive system that allows parties to track information securely with no need for third-party verification.

Under the proposed initiative, blockchain could be deployed to provide a shared ledger system across countries’ central securities depositories and clearing houses, Mr Khalifa said.

“To put in layman’s terms, an investor in Saudi that has an investor account – his account should be as a passport that he can use on any platform with any brokers and the broker can access any GCC country and therefore you will no longer need to cross-list any company.

“All the investor has to do is click on a drop-down menu, choose the country and the company and start buying. Fintech and blockchain makes this a much more viable solution and we are working heavily on this because we understand the need to get ready for the fintech revolution in the financial industry,” he said.

Bahrain Bourse also plans to introduce an ‘e-IPO’ platform next year that would simplify and reduce the cost of listing by removing the need for a syndicate of banks and a manual book-building process.

“The fee structure keeps going up and up,” Mr Al Khalifa said. “I think that removing this system completely and providing a cloud-based platform for investors to join is vital and this is something we are launching in 2018.”