Interview: Sheikh Khalifa bin Ebrahim Al Khalifa
What are the most significant aspects of Bahrain’s Economic Recovery Plan for capital markets?
SHEIKH KHALIFA BIN EBRAHIM AL KHALIFA: The Economic Recovery Plan is very broad, and each pillar of the strategy complements other objectives and targets. The plan focuses on developing large infrastructure projects; enhancing the efficiency of commercial procedures; achieving fiscal sustainability and economic stability; and developing priority sectors – namely, oil and gas, tourism, logistics, industry, ICT and financial services.
Under the Financial Services Development Strategy 2022-26, one of the main goals for capital markets is to increase the volume of initial public offerings (IPOs) from both government-related entities (GREs) and private corporate enterprises. The inclusion of Bahrain Bourse in the MSCI Emerging Markets Index is another target, as is facilitating the digital integration of local and international investors by utilising financial technology. The digital onboarding of investors will complement other strategic objectives and help to improve Bahrain’s financial sector.
Which types of hurdles do Bahraini companies typically face when considering an IPO, and how can firms be encouraged to list?
AL KHALIFA: Liquidity has increased in the market since 2006, and it has become very attractive for many companies to invest in future growth. However, the challenges faced by small and medium-size enterprises (SMEs) are different from those faced by larger companies. After policy changes were introduced for the main market in 2008 to encourage additional listings, the primary challenges for SMEs were related to the fear of being first. Over time, the challenges have evolved and now largely pertain to the cost of listing.
Being a listed company requires more resources due to ongoing obligations, and this has a significant impact on the bottom line of SMEs in particular. This prompted us to launch the Bahrain Investment Market (BIM) in 2017, which is an equity market that allows smaller companies to float shares under more flexible regulations. Since then, we have continued to develop the rules and frameworks governing SME listings to ensure that all the challenges they face are adequately addressed. The bourse is targeting at least five new listings on the BIM under the Financial Services Development Strategy.
How can capital markets support the aim to develop $30bn in strategic infrastructure projects under the Economic Recovery Plan?
AL KHALIFA: The government is very committed to the development of capital markets, which played a crucial role during the Covid-19 pandemic by supporting GREs. In addition, the government has financed billions of dollars worth of investments through the debt market, illustrating the essential role that capital markets can play in financing strategic projects through both the equity and debt markets. In the future, there will be an IPO for each project. Beyond fundraising, Bahrain Bourse has a key part to play in spreading and managing financial risk for projects.
To what extent are global trends likely to shape foreign investment flows?
AL KHALIFA: Morgan Stanley forecast in March 2022 that some $82bn in foreign capital would flow into Middle East equities this year as the region continues to outperform international stock markets for structural and technical reasons. Higher energy prices have a net-positive impact on our economy, so Bahrain found itself in a strong position to capitalise on events in global markets in the first quarter of the year.
One of our longer-term objectives is to encourage transparent and reliable reporting on environmental, social and governance (ESG) criteria, as well as boost support for investments that incorporate an ESG agenda. This will help companies better manage risk.
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