More than six years after an initial proposal was officially ratified, the planned privatization of the country’s stock exchange gained momentum on 3 October with the Boursa Kuwait Securities Company (BKSC) being granted the official license to fully take over and replace the Kuwait Stock Exchange (KSE).
The privately managed BKSC, or Boursa Kuwait as it is generally known, was set up in 2014 with the purpose of assuming responsibility for the management of KSE’s activities. In April of this year, Boursa Kuwait officially assumed responsibility for the management of all KSE operations with its Board of Directors replacing the KSE’s committee.
Sustained low oil prices that have resulted in back-to-back budget deficits is compelling Kuwait to diversify the economy away from its over reliance on oil, rationalize expenses and privatize some state assets.
With Kuwait’s fiscal balance predicted to turn negative in 2016 and remain so for three years until 2019, privatization of the stock exchange is viewed as a key plank of Kuwait’s plans to strengthen its financial sector and diversify its economy away from oil.
Political objections and bureaucratic resistance that had hampered privatization plans in the past appear to have taken a back seat, at least for the moment, as low oil revenues begin to bite and create pain points in every segment of the economy.
The hand-over process from KSE to Boursa Kuwait, which involved the implementation of a detailed operational plan and strategic roadmap designed to ensure the smooth transition of stock market operations, was developed in close collaboration with the Capital Markets Authority (CMA).
By privatizing the stock exchange, the CMA hopes to improve the bourse’s competitiveness in the region and globally. Though it is the oldest stock exchange in the region, established in 1962, a recent rise in de-listings and falling value of traded shares was undermining KSE’s competitiveness and threatening to widen a gap with rival bourses in the region. The value of traded shares fell 40 percent in the year to September 30, from $10.6 billion to $6.5 billion.
Commenting after Boursa Kuwait ended its first day of trading in April, the Chairman of the CMA Board of Commissioners Dr. Nayef Falah Al-Hajraf, said: “Today we have taken the first step on the road to privatizing the Kuwait Stock Exchange and we are looking forward to working closely with Boursa Kuwait’s management on making further progress. This will include the development of investment tools, restructuring the market to increase its competitiveness, working to increase liquidity and attract investments with a view to issuing an Initial Public Offering (IPO).”
Speaking during the hand-over function the CEO of Boursa Kuwait, Khaled Abdulrazzaq Al Khaled said, “We will now work on developing stock exchange’s market status and creating a transparent capital market platform that serves a variety of asset classes and operates to robust international standards.”
Outlining some of the proposals to regulate the stock market, he said that by November the Boursa would introduce a ‘stock swing’ limit of 20 percent, for the maximum daily rise or fall of all individual stocks. In addition, he said, “KSE would introduce a ‘circuit breaker’ mechanism allowing for brief halts in trade with every move of 5 percent. At present, the range of limits for stock movements varies depending on the level of stock prices.” He revealed that the final set of regulations for Boursa Kuwait would be published by the end of the year. “In 2017, Boursa Kuwait will look at drafting new rules around short-selling, stock market lending and borrowing, and market segmentation,” he added.
Nearly five months after the successful transition period, it now appears that the Boursa Kuwait is on course to make its IPO to Kuwaiti citizens and other government stakeholders, along with selecting an international operator for the exchange. Share sale details for the IPO have yet to be confirmed but under a draft version of the plan, half of the KSE will be sold to citizens while the rest will be split between various government entities and a private company with experience in operating stock exchanges.
With Kuwait’s financial sector expected to be a key driver of economic growth, new regulations such as those enabling privatization of the stock exchange and banking reforms are seen as being critical to strengthening capital markets, increasing liquidity and attracting foreign investments to the country. A privatized bourse in particular is expected to improve liquidity and efficiency in the marketplace.