Bahrain’s government hopes to bring greater international attention to its capital markets through promoting the Kingdom’s credentials as a centre of finance and fund management and its capacity to broker deals.
Addressing the annual Fund Forum Middle East conference on October 4, chief executive of the Bahrain Economic Development Board (EDB) Sheikh Mohammed bin Essa Al Khalifa said that fund management had been an important part of the Kingdom’s financial sector since the 1980s.
Bahrain is the ideal gateway for fund managers to access the Gulf region due to the country’s stability, well-regulated capital markets regime and a risk-averse approach that makes it less vulnerable to shocks, said Al Khalifa.
“This is the right time and the right place for fund managers who want new ways to generate better returns,” he said. “When you’ve been around for more than 40 years, the bumps on the road are easier to negotiate, because you have dealt with them before. People can feel more secure when they know your reaction will be considered and measured,” he said.
Bahrain is backing up its talk with action, with state agencies and companies leading the way back into bond and bill markets. Mumtalakat – A government-owned investment organization that manages the Kingdom’s sovereign wealth fund – issued a $750 million bond with a five-year term in June, and the Central Bank of Bahrain (CBB) has been holding regular bond issuances throughout the year.
The CBB announced on October 5 that its latest issue, a $133 million three-year government development bond had been over-subscribed by 183 percent; a high level of interest has been a constant feature of the bank’s forays into capital markets. An offer of $66.5 million worth of treasury bills in early October was oversubscribed by more than 300 percent while the CBB’s most recent issue of Sukuk Al-Salam Islamic securities, which also had a ticket price of $66.5 million, also garnered interest of more than 400 percent of face value.
In September, officials of Mumtalakat said that the sovereign wealth fund was planning to launch an initial public offering (IPO) for a part stake in Aluminium Bahrain (Alba), with the proceeds of the sale to be used by the fund for other investments. Currently, Mumtalakat holds 77 percent of Alba’s shares, with the balance owned by Saudi Basic Industries.
Mahmoud Hashim Al Kooheji, Alba’s chairman, said that the IPO could take place as early as November or December, with the move allowing the firm to bolster its financial flexibility and allow it to compete on international markets.
“We are doing this as part of sharing the wealth with the people of Bahrain,” Al Kooheji told the Bloomberg news agency on September 21.
“Once we get listed, we will be the biggest market-cap company on our stock exchange.”
On October 5, the company firmed up its plans for the IPO, issuing a statement saying that JPMorgan Chase & Co and Citigroup had been appointed to manage the share sale on local and international exchanges, with Bahrain’s Gulf International Bank being named as the lead regional manager.
Alba said that up to 163 million shares would be offered, representing 11.47 percent of the company’s total shares, with ordinary stock listed on the Bahrain exchange and global depository receipts on the London Stock Exchange.
It is not just state-backed bodies that are turning to the country’s capital markets. In late September, Al Baraka Banking Group announced it was would use them to fund its expansion program. According to chief executive Adnan Yousif, the funds generated by the issue, which will be held by December at the latest, will go towards establishing up to five branches of the bank in France.
While Bahrain is by no means the only country in the region working to develop its capital markets, it has long been a regional leader. Dubai is just one of the Gulf States that is active in trying to make financial services one of the main pillars of its economy, while Kuwait and Saudi Arabia have also invested heavily in establishing their capital credentials.
Further a field, Malaysia is also trying to become a centre of Islamic finance and capital.
While Bahrain is a small country, its capital markets have a track record of stability and experience, both in conventional and sharia-compliant finance. The Kingdom also has the highest concentration of Islamic financial institutions in the world and is home to many of the bodies that set the standards for the industry across the globe, all of which bodes well for the future.