Brunei Darussalam looks to a new bourse to diversify economy

Plans to launch a stock exchange in Brunei Darussalam by 2017 will bolster its capital markets in line with plans for regional market integration as well as aid the broader drive to diversify its economy away from dependence on oil and gas.

In mid-May, the Autoriti Monetari Brunei Darussalam (AMBD) said it was researching the possibility of establishing a bourse in the next two years, building on new capital market rules introduced by the central bank in February. Brunei Darussalam and Myanmar are the last two ASEAN members without a stock exchange, but this is set to change shortly following Myanmar’s announcement that it intends to launch a bourse later this year.

Regional opportunities                                                                    

According to the AMBD, the planned exchange will help strengthen the domestic economy by providing a funding source for small businesses and improve corporate governance. The bourse will also be key to maintaining the Sultanate’s regional influence as ASEAN integration deepens over the coming years, according to officials. “This is also a stepping stone to enable Brunei Darussalam to participate in ASEAN Exchanges,” Mahani Mohsin, executive director for insurance/takaful and capital market supervision at the AMBD’s regulatory department, said in June. 

ASEAN Exchanges is an initiative to integrate regional stock exchanges, combining the Indonesia Stock Exchange, Vietnam’s Hanoi Stock Exchange and Ho Chi Minh Stock Exchange, and other neighbouring bourses. The first phase of the project kicked off in 2012 with a three-way link between the Thai, Malaysian and Singaporean exchanges, but industry participants have called for a deepening of post-trade linkages, to bolster the pan-ASEAN initiative.

However, with an eye towards regional integration, Brunei Darussalam’s central bank issued guidelines for a Securities Market Order (SMO) in February, easing the way for a future exchange. The SMO was enacted in 2013 as an important pillar to support the growth of Brunei Darussalam’s capital markets.

Local reaction

Business leaders have welcomed the move, with around 12 major domestic firms potential candidates to list on the exchange, including downstream oil and gas service firms, financial institutions like Bank Islam Brunei Darussalam (BIBD) and utilities such as Telekom Brunei. However, the growth of the exchange may be gradual. “Initial success would be slow, for a full-blown capital market it will be a longer journey,” Javed Ahmad, managing director at BIBD, the country’s largest lender, told Reuters in May.

Officials from the AMBD told OBG last year that a proposal to create an equity market through initial public offerings of minority stakes in larger state-owned firms was under discussion.

Multinational companies have also shown interest in a new bourse. Last year, lighting solutions giant Philips said it would review the possibility of listing on a Bruneian exchange.

At the same time, creating a local bourse is crucial to establishing the Sultanate as a financial centre, according to Badlisyah Abdul Ghani, CEO of CIMB Islamic Bank. “Coming up with a Securities Law [Order] to enable the establishment of a stock exchange will definitely provide the right platform to strengthen [Brunei’s] indigenous market as it allows for Brunei entities and even foreign entities to tap the equity market,” he told local media in June.

SME boost

Small and medium-sized enterprises (SMEs), which make up 95% of the Sultanate’s businesses, will also benefit from a more mature capital market environment − a key impetus for the country to launch the exchange as a means to strengthen funding of small businesses and diversify the economy.

As largely state-run institutions, local banks are under pressure from the government to boost lending to SMEs. The lack of personal income tax in Brunei Darussalam, including for sole proprietors, presents challenges when it comes to funding small businesses. Although new small corporations are exempt from corporate tax for three years and firms with annual income below BN$250,000 ($186,404) pay reduced corporate tax rates, many SME owners prefer to remain sole proprietors. Those that do incorporate often structure their business so that profits are directed to a separate sole proprietorship, making it difficult for bankers to judge their creditworthiness.

Investors are increasingly calling for an organised market for equity funding, also in view of the fact that Brunei Darussalam’s bond market is limited to the issuance of short-term sukuk (Islamic bonds) by the Ministry of Finance, to which only banks are allowed to subscribe. Access to international bond markets is also difficult, as Brunei Darussalam does not have a sovereign rating. 

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