Late March saw the Bahrain Bourse (BHB) inaugurate the Bahrain Investment Market (BIM) – an alternative source of financing for growing businesses in the kingdom and the wider MENA region.
The new equity market aims to improve access to finance for small and medium-sized enterprises (SMEs) that do not meet the listing criteria for BHB’s main board.
“Fast-growing companies need capital and, up until now, they have leaned towards bank lending, which was all that was available to them,” Khalifa bin Ebrahim Al Khalifa, CEO of BHB, told OBG.
“However, if you lack a previous track record, securing funds is difficult and poses a challenge for entrepreneurs. BIM will enable innovators in the region to attract more investors while at the same time lowering their own risk exposure,” he said.
Indeed, the move looks set to help a significant portion of Bahrain’s economy, with start-ups representing the largest and fastest-growing segment in the private sector, according to the BHB.
BIM should also go some way towards satisfying a growing appetite for Bahraini stocks, with trading volumes rising by 42% on the BHB last year, while commercial registrations nearly tripled to 27,000, as per Ministry of Industry, Commerce and Tourism figures.
“BIM’s creation will give the nascent private equity industry more opportunities to pursue exit through IPOs,” Ayman Sejiny, CEO of Ibdar Bank, a Shariah-compliant investment bank that recently launched a $100mn fund targeting Bahraini SMEs, told OBG. “This is something that will certainly help regional private equity firms by broadening the number of divestment strategies they have available.”
While BIM has been established with the broad aim of boosting the private sector’s contribution to the economy, the BHB is focusing its promotional efforts on the manufacturing, real estate, ICT, food and beverages, medical services, education, tourism and leisure, and logistics sectors.
In addition, an effort to maintain an entrepreneurial spirit and a continued commitment to growth among candidates means the BHB requires that companies are subject to a two-year lock-up period from the date of listing on the new exchange. Businesses are also obliged to hold at least 30% of issued capital.
While these obligations have been put in place, smaller companies looking to trade their shares through BIM can enjoy a number of benefits that are unavailable to firms looking to join the main board.
For example, the cost of listing a company on BIM is BD1000 ($2650), compared to between BD5000 ($13,250) and BD15,000 ($39,700) on the BHB.
Furthermore, by allowing companies to make direct public offerings through BIM, SMEs will be able raise capital without the need for an underwriter, thus reducing outlays further.
As well as enjoying cheaper fees, SMEs can apply for financial support to join the new market. To this end, an agreement struck with Tamkeen – a semi-governmental organisation that promotes the role of the private sector in Bahrain’s economy – will see the company help cover the costs associated with listing and appointing a sponsor. The latter is a prerequisite of joining the new equity market and costs roughly BD2000 ($5300) per year.
A more relaxed set of admission requirements for BIM compared to the BHB are also in place – such as a minimum paid-up capital of BD250,000 ($662,600), compared to BD1m ($2.6m) for domestic companies and BD3.77m ($9.9m) for foreign firms on the main board.
Businesses that wish to list on BIM must also have a minimum of three shareholders, as opposed to 100 on the main board.
Let sponsors in
Although listing requirements are less stringent for BIM, one of its differentiating elements is the role played by professional advisory firms in helping SMEs enter the market.
Known as sponsors, these companies will offer guidance in completing the documentation and fulfilling the financial disclosure requirements needed for approval by the BHB.
The authority has so far accredited KPMG, GCC-focused Keypoint and Belgium-based BDO Consulting, and SMEs looking to list must retain their services before and during the procedure.
These sponsors, for their part, have already started working with several potential listing companies but none have been launched as of yet.
“The process of getting companies listed should not last more than one month, but it really depends on the type of company,” Wajdi Al Jallad, managing director of Keypoint, told OBG. “In our opinion, 10 successful listings by the end of the year would be a success, while 20 would represent the best-case scenario,” he said.