How privatisation will boost exchange activity on Boursa Kuwait

A group of domestic and international investors have acquired a 44% stake in Boursa Kuwait, the country’s stock exchange, with plans in the offing to launch an initial public offering (IPO) for the remaining shares.

This move marks the fulfilment of a long-term goal, with a requirement to eventually privatise the stock exchange forming part of the country’s Capital Markets Law, which was passed in February 2010.

The sale was agreed on February 14 with the winning tender being awarded to a consortium led by the domestic investment and asset management firm National Investments Company, which offered to pay KD0.237 ($0.78) per share.

The other firms involved in the purchase were Arzan Financial Group and First Investment Company, both of which are local public shareholding companies, with the Athens Stock Exchange (ATHEX) serving as the qualified international operator.

Meanwhile, 6% of the exchange will continue to be owned by the Public Institution for Social Security. On February 17 Abdulaziz Al Marzouq, commissioner of the Capital Markets Authority (CMA) and vice-chairman of the exchange’s privatisation committee, announced that the exchange would likely launch an IPO for the remaining 50% of shares in late 2019 or early 2020.

See also: The Report – Kuwait 2018

Stock exchange gains emerging market status on key indices

The shift from public to private ownership was precipitated by a series of moves on the part of the CMA to boost capital inflows and liquidity on the exchange by increasing its international appeal.

These goals received a significant boost in December when S&P Dow Jones Indices announced that it would add Kuwait to its Global Benchmark Indices with an emerging market classification in September of this year.

According to a statement from the ratings agency, the inclusion was informed by progress made by Boursa Kuwait with regard to clearing and settlement.

These reforms included a change to a T+3 settlement cycle for both local and foreign investors made in May 2017, and the establishment of a delivery versus payment (DvP) system in April 2018.

In September 2018 Boursa Kuwait was also included in the emerging markets list of the FTSE Russell Emerging Markets Index.

“Instrumental to this achievement was the infrastructural changes implemented in areas such as the settlement cycle, trading efficiency, transparency and disclosures,” Khaled Abdulrazzaq Al Khaled, CEO of Boursa Kuwait, told OBG last year.

Furthermore, another global stock market index provider, MSCI, is due to announce whether to reclassify the MSCI Kuwait Index from frontier to emerging markets status at its annual classification review held in June.

At last year’s meeting MSCI released a reclassification proposal on the matter, initiating an ongoing consultation process.

New trading platform launched and more developments to come

The infrastructural changes enacted in recent years also set a solid foundation to broaden the range of products on offer to investors, with the most recent of these being an over-the-counter trading platform launched in November.

The new product allows investors to purchase stocks in unlisted companies, giving smaller firms and start-ups that do not qualify for listing another route to growth. Purchases and sales must be made through licensed brokers, with Boursa Kuwait issuing notices of approval for every transaction.

The CMA also undertook the first of two phases of market development work between January 2 and February 3, during which it tested new initiatives, including an after-hours trading session and improvements to trading platforms.

A second phase of the project will take place between May 26 and September 26, when the implementation of a DvP-2 system will be explored, along with trading on margin by qualified brokers, among other areas.

These ongoing efforts to increase its product offering and streamline its operations have not only supported Kuwait’s acceptance onto emerging market indices, but may also have contributed to increased market capitalisation and trading over the past year.

At the close of trading last month, total market capitalisation stood at KD30.4bn ($100bn), up from KD28.7bn ($94.4bn) a year before. Also in February, the total volume of traded shares was 2.5bn while the value traded was KD439m ($1.4bn), representing year-on-year increases of 79% and 109%, respectively.

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