Bahrain’s capital markets are targeting increased activity, with the GCC region in the midst of a sustained initial public offering (IPO) boom. Key corporate and government entities are looking to debt and security markets to fund growth, with sovereign bonds in particular proving highly attractive to investors keen to de-risk their portfolios at a time of global economic unpredictability.
Bahrain boasts a more diversified economy than many of its GCC neighbours – with an advanced financial services sector lessening its dependence on hydrocarbons revenue – and is governed by authorities renowned for forward-thinking, riskaverse policy formulation. Meanwhile, moves to strengthen regional stock market cooperation and business relations are bearing fruit in the form of mergers and cross-listings.
Strategy
Bahrain’s Economic Recovery Plan was launched in October 2021 to provide a strategic blueprint for the reinvigoration of the kingdom’s economy following the Covid-19 pandemic. It contains a number of sector-specific development strategies, one of those being the Financial Services Sector Development Strategy 2022-26. Financial services constitute Bahrain’s largest economic sector in terms of contribution to GDP – accounting for 17.8% of GDP in 2023 – and are being harnessed to propel economic growth and private sector expansion.
Developing the kingdom’s capital markets is a central element of the country’s financial services strategy. The government has set a number of goals to achieve by 2026. These include attracting and facilitating more IPOs on Bahrain Bourse (BHB) and seeing a greater number of enterprises list securities on the Bahrain Investment Market (BIM), with five targeted by 2026. The BIM was conceived to drive growth for companies that do not yet meet requirements for listing on the main-board market. Additionally, in May 2024 BHB stated its intention to list a number of government and semi-government entities on the exchange by 2026.
Additional strategic goals include upgrading the equity market classification on MSCI & FTSE to Emerging Markets status; increasing coordination and cross-listing between exchanges in the GCC region; enhancing linkages between local, regional and international clearing, settlement and central depository systems; greater automation of integral exchange-related services, such as digital onboarding for BHB; and the development of a system to enable direct trading of government securities on the secondary market. Stimulating a 20% increase in individual and institutional participation in public primary debt issuances is another important target. Ultimately, Bahrain’s medium-term economic development plans are designed to drive further progress towards the goals of Bahrain Economic Vision 2030, which was launched in 2008 and provides a blueprint for Bahrain’s long-term socio-economic development (see Economy chapter).
Structure & Oversight
The Central Bank of Bahrain (CBB) is the sole regulatory authority in Bahrain’s financial services sector, making it responsible for oversight of BHB. Under the CBB’s umbrella, the Capital Markets Supervision Directorate (CMSD) regulates and supervises the kingdom’s capital markets and activities therein, with transparency and investor protection key among its mandates. Bahrain’s status as an international financial services centre sees the CMSD working to uphold all relevant international standards, including those of the International Organisation of Securities Commissions (IOSCO). Bahrain became a signatory to the IOSCO multilateral memorandum of understanding concerning consultation, cooperation and the exchange of information in February 2008.
Bahrain Clear, a fully owned subsidiary of BHB, was established in 2017 and is the country’s official clearing, settlement and central depository authority. It manages shareholder records and registers traders to the central depository system via automated platforms that guarantee delivery versus payment on a T+2 basis, meaning that payments are settled by brokers no later than two business days after the execution of a trade.
Bahrain’s financial authorities have worked in recent years to improve accessibility to financial systems. Additionally, the country has endeavoured to enhance financial literacy among its population, with BHB receiving the Best Arab Stock Exchange for Financial Literacy award at the Arab Federation of Capital Markets’ 2024 awards in Doha, Qatar.
Regional Cooperation
GCC capital markets regulators have collaborated to launch a regionwide digital system designed to simplify the process of opening accounts and trading on GCC-licensed exchanges for citizens and residents, placing greater emphasis on customer due diligence procedures and enhancing know-your-customer compliance models.
In November 2021 BHB collaborated with the Abu Dhabi Securities Exchange to launch Tabadul, the region’s first digital exchange hub. Tabadul allows traders to access participating bourses through local authorised brokers and is intended to boost liquidity in participating exchanges by enhancing investor access. This objective was further supported in January 2023 when Muscat Stock Exchange joined the platform. In February 2024 the CBB and Saudi Arabia’s Capital Market Authority signed a memorandum of understanding to develop bilateral cooperation related to dual listings on both countries’ exchanges. Increased regional cooperation has also contributed to some high-profile cross-listings on GCC stock exchanges in recent years.
BHB
The Bahrain Stock Exchange was established in 1987, with a 2010 restructuring into a shareholding company resulting in BHB taking its place. BHB operates as a self-regulated, multi-asset marketplace, offering investors, issuers and intermediaries a full range of trading, listing, settlement and depository services. Innovation and stakeholder collaboration are cornerstones of BHB’s growth model.
BHB carries two indices, the Bahrain All Share Index (BHBX) and the Bahrain Islamic Index (BIX). BHBX is the larger of the two, while activities on both are carried out across automated trading platforms. As of September 2024, the BHBX included 38 listed companies, whereas the BIX had 12. There were a total of 42 joint-stock companies listed on BHB that same month, with trading being carried out by nine licensed members. Crypto-asset regulations were updated by the CBB in February 2024 to address changes in a rapidly evolving market as cryptocurrencies gain traction globally.
SICO, a Bahraini asset management firm that also operates in the UAE and Saudi Arabia, was the most active licensed broker on BHB for the 25th consecutive year in 2024. The firm accounted for 47.2% of all trading on the bourse in 2023 – a figure that encompassed over 12,500 transactions, 736m shares and a total value of BD192m ($509m).
Since 2021 BHB has been structured according to the Global Industry Classification Standard (GICS), which was co-developed by MSCI and Standard & Poor’s in 1999. The GICS model comprises 11 sectors, 24 industry groups and over 60 industries and 150 sub-industries. Upon aligning with the model, BHB-listed companies were spread across seven of the 11 sectors. As of July 2024, out of a total of 42 listed companies, 22 fell within the Financials category – reflecting the prominent position of financial services in Bahrain’s economy. That number included the two non-Bahraini companies listed on BHB, Bank Muscat and Kuwait Financial House (KFH). The remaining 20 listed companies were divided between consumer discretionary, with five listings; consumer staples, with four; communication services, real estate and industrials, with three listings apiece; materials, with one; and SICO, which was listed on BHB as a closed stock company.
Listing Requirements
BHB listing requirements apply uniformly to local and foreign companies, and BHB retains absolute discretion regarding the admission of listings on the main-board market. Issuers seeking to list equities on BHB must appoint a listing agent or lead manager to oversee and manage the application process. The appointed person or entity must be satisfied that the issuer’s securities are suitable for listing and that said issuer can meet the continued listing requirements and all other requirements set by BHB, in accordance with a range of CBB laws. An issuer intending to list shares on the BHBX or BIX must have at least 100 existing non-employee or associate shareholders, and those shareholders must be issued with a free float of at least 10% of the total issued outstanding shares. Meanwhile, the prospective issuer must be able to show BD1m ($2.7m) in paid-up capital, and either display net profit during the preceding three years, or have achieved net profit of 10% of its issued and paid-up capital over a designated period prior to application. Additionally, full foreign ownership of companies listed on BHB is permitted, while most BHB-licensed brokerages allow remote registration and trading on the bourse so investors do not need to enter Bahrain to trade on BHB. That said, competitive visa and foreign property ownership laws are in operation to entice investors and entrepreneurs to live and work in Bahrain.
BIM
The BIM was established in 2017 as a means to enable fast-growth companies that do not yet meet the requirements for a full IPO to attract investment and stimulate growth through direct offerings. Intended to drive the expansion of fast-growing companies across priority sectors such as manufacturing, logistics, ICT and real estate, the BIM offers a more relaxed regulatory framework and disclosure and admission requirements. Companies listed on the BIM that undergo sufficient growth can transition to listing on the main-board market. Some of the key requirements for listing on the BIM are that a company has minimum paid-up capital of BD50,000 ($133,000) or equivalent in foreign currency; maintains a free-float of 10% of all issued outstanding shares; carries a minimum of two shareholders; and is registered as a closed shareholding company in either Bahrain or another country.
The initiative has yet to develop major traction, with a single company, automotive service provider Montreal Motors, listed on the BIM as of July 2024. However, the Montreal Motors listing arrived shortly after regulatory amendments were implemented in April 2023 – a key feature of which included the removal of the requirement for an authorised sponsor, enabling companies to apply directly through BHB. This development is designed to reduce costs and bureaucracy and could help generate interest.
Cryptocurrency
Bahrain is working to develop its cryptocurrency market and position itself as a regional centre for crypto-asset trading. In May 2022 the CBB granted a licence to Binance, the world’s largest cryptocurrency trading platform, to operate in Bahrain. The CBB also issued a raft of regulatory upgrades in March 2023 and February 2024. Key among the CBB’s legislative amendments were articles that see digital-token offerings included in the country’s framework of crypto-asset activities. Digital token offerings can now, following appraisal, be classified as securities by the CBB and regulated as such. Tighter regulations regarding money laundering, the safeguarding of investors’ digital assets and increased protections for traders were also included, as were allowances for crypto-asset holders licensed by the CBB to engage in investment activities unrelated to crypto trading.
The drive to develop the cryptocurrency market is tied to the CBB’s goal of positioning Bahrain as an international leader in financial technology (fintech). As of April 2023 the country housed around 120 fintech companies, with payment solutions providers, and blockchain and crypto-related enterprises accounting for a high proportion of the market.
Trading Activity
Notwithstanding quarterly fluctuations in specific metrics, trading activity on BHB has been on a general upward trajectory for a number of years. The BHBX registered 1587.97 points in the second quarter of 2021 and climbed to 2073.54 points in the first quarter of 2022 – its peak for the 2021-24 period. The second quarter of 2022 saw the index slump to 1839.63 points – its lowest reading for that same period – before increasing to 1895.27 points at the close of that year. In terms of the last full year of trading, the BHBX registered 4% growth in 2023, ending the year at 1971.49 points. As of the first quarter of 2024 the index registered 2042.67 points, close to its 2022 high.
Both the quarterly value and volume of shares traded on the BHBX increased significantly between the second quarter of 2021 and the first quarter of 2024, with the former rising from BD42.3m ($112.1m) to nearly BD85m ($225.4m), and the latter increasing from BD269.1m ($713.8m) to BD414m ($1.1bn) over that period. BHBX market capitalisation underwent considerable fluctuation during the same period, rising between the second quarter of 2021 and the first quarter of 2022 from BD9.9bn ($26.2bn) to BD12.5bn ($33.1bn), then declining to BD11.4bn ($30.1bn) in the first quarter of 2023. From there it fell sharply to BD7.7bn ($20.4bn) in the second quarter of 2023, but registered expansion to BD8.1bn ($21.4bn) in the first quarter of 2024.
Between January 2022 and January 2023 the BIX grew by 9.9%, from 663.13 points to 728.91 points. There were 246 trading days in 2023, with the daily average value of shares traded on BHB rising by 23.8% over the course of the year to reach nearly BD855,000 ($2.3m), while the daily average volume of shares traded rose by 45.4% to approximately 3.2m. The average number of daily transactions during 2023 was 72, up from 71 the previous year. Of the 42 joint- and closed-stock companies listed on BHB during 2023, there were 15 advancers, 22 decliners and five were unchanged.
The first quarter of 2024 saw the BHBX grow by 3.6% compared to the same period of 2023, while the BIX rose by 10.7%. The average number of daily BHB transactions increased substantially for that period, reaching 84. Additionally, the average daily value of shares traded increased by 30.6% to BD1.3m ($3.4m), while the average daily volume of shares traded increased by 67.5% for the period to nearly 6.5m.
Mergers & Acquisitions
The financial services sector has witnessed significant mergers and acquisitions (M&A) activity in recent years, with KFH’s July 2022 takeover of Bahrain’s Ahli United Bank (AUB) creating one of the region’s largest banking entities. The move also resulted in KFH being cross-listed on the Kuwaiti and Bahraini exchanges in October 2022 – with AUB shareholders seeing their holdings converted to KFH stocks, tradeable on both countries’ markets. KFH had a market capitalisation of BD15bn ($40bn) as of July 2024.
Another significant move towards market consolidation involving the same Kuwaiti entity was the May 2024 sale of KFH’s Bahrain-based subsidiary, KFH Bahrain, to Al Salam Bank, which was working in partnership with Dubai Financial Market. The move marks Al Salam Bank’s fifth M&A move since 2009, and the integration of KFH Bahrain’s estimated asset value of around BD1.5bn ($4bn) boosted the former’s balance sheet by some 28%. Al Salam’s market capitalisation was BD640m ($1.7bn) as of July 2024.
Furthermore, in February 2024 the National Bank of Bahrain (NBB) announced that it was in talks with the Bank of Bahrain and Kuwait (BBK) about a potential merger. NBB had a market capitalisation of BD1.2bn ($3.2bn) as of July 2024, while that of BBK was BD917m ($2.4bn). With many of Bahrain’s largest banks being foreign-owned, the NBB-BBK merger would create a lender with majority Bahraini ownership able to compete in both the domestic and regional financial markets.
Bond Market
Bahrain’s government and corporate bond markets are well developed. As of July 2024 there were 15 traditional government development bond issues listed on BHB, with maturities ranging between two and six years and coupon values in the 3.2-6% range. The most recent was issued and listed in March 2024 with a two-year maturity, a 6.1% coupon price and a total issue value of BD285m ($756m). Also at the time of writing, there were four issues of sukuk (Islamic bonds) on the market with maturities in the range of six-10 years and coupon prices in the 4.5-5.5% range. Government bond maturities were valued at BD2.5bn ($6.6bn) in April 2023, with BD1.5bn ($4bn) of that sum payable in August of that year.
GCC governments are entering international bond markets with increasing frequency. Indeed, deepening debt markets is one of a number of methods being deployed to attract higher inflows of foreign and private finance to support the diversification of the bloc’s traditionally hydrocarbons-dependent economies. In April 2023 reductions in the cost of borrowing, increased oil prices and a boosting of the kingdom’s credit outlook to positive by Standard & Poor’s Global Ratings encouraged the Bahraini government to re-enter the international bond market for the first time since 2021. Dollar-denominated sukuk securities were offered with a seven-year maturity and 6% return, while traditional bonds, also dollar-denominated, were offered over terms of 12 years with 7.5% interest. The coupon prices were originally offered as 6.9% for the sukuk instruments and 8% for the traditional bonds, but high investor interest – orders reached a value of $14bn – enabled the government to lower yields.
Meanwhile, it was announced in May 2024 that BBK had appointed Bank ABC, Citi, Emirates NBD Capital, First Abu Dhabi Bank, JP Morgan, Masreq and SICO as joint lead runners and bookrunners for its planned sale of five-year bonds valued at $2bn. As of June 2023, these entities were engaged in investor calls regarding the sale, which marks BBK’s first foray into the bond market in five years.
Outlook
Initiatives designed to enable smaller companies to benefit from market flotation are yet to gain traction, but signs suggest that tweaks to policy could stimulate forward momentum in that respect. Meanwhile, the raft of anticipated new listings within the next two years should generate activity on the country’s main markets. Indeed, increased liquidity for BHB will be crucial moving forwards, as the increase in trading volume and value in recent years has masked a lack of new listings. Traditional bonds and sukuk will likely retain their heightened appeal while high interest rates persist, and the country’s new cryptocurrency regulations should help raise Bahrain’s competitive strength in a rapidly expanding, potentially lucrative space.
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