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Reforms to take Boursa Kuwait to new heights
April 8, 2018, 2:54 pm
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Last week’s shake-up of Kuwait’s equity market, specifically aimed at attracting investors and encouraging initial public offering (IPO), is part of the package of reforms that the authorities have been implementing to boost activities on Boursa Kuwait, the country’s stock exchange. Since its establishment in 2010, the Kuwait Capital Markets Authority (CMA), the independent entity that fully owns and manages operations of Boursa Kuwait and is charged with regulating and supervising all aspects of Kuwait’s capital market, has been implementing a slew of reforms.

These changes, aimed at growing the country’s capital market and regulating its activities to ensure fairness, transparency and efficiency, have gone a long way to enhancing investor protection, reducing systemic risks from Securities activities, and, in general, increasing public confidence in the equities market. After the dramatic drop in oil prices in mid-2014, governments in the six-nation Gulf Cooperation Council (GCC) bloc have been implementing economic and financial reforms aimed at weaning their economies off over-reliance on hydrocarbon resources. As part of these efforts, the authorities have been keen to fully or partially privatize many state-owned assets, including industries, airlines, health services and stock exchanges. Efforts by the government to privatize some of the state-controlled assets, as well as an increase in the pace of private sector deals in recent months, has led to a pick up in pace of activity in Kuwait’s equity capital market.

The most recent reforms are intended to pave the way for Boursa Kuwait’s initial public offering, now expected to take place some time in early 2019. Speaking to the media last week, the CEO of Boursa Kuwait, Khaled AbdulRazzaq Al-Khaled, said “We’re getting ready for an IPO, hopefully by the first-quarter of next year.” The Kuwait Stock Exchange (KSE), which was founded in 1983, began a gradual process of privatization in 2014 under the guidance of the CMA that saw the setting up of Boursa Kuwait, an entity formed to gradually takeover Securities Exchange operations from KSE. By the time the transition phase ended in 2016, Boursa Kuwait had upgraded the infrastructure and business environment of the exchange and brought it on the level of international standards. Kuwait’s equity market is now divided into three segments: Premier, Main, and Auction Markets, with the Premier Market composed of the largest and most liquid companies.

The market segmentation is designed to incentivize companies to improve liquidity and transparency. Boursa Kuwait introduced new indexes designed primarily to measure the performance of the new market segments and the market as a whole. Unlike the old price index, all indexes will be market capitalizationweighted to better reflect market performance. Boursa Kuwait has also adopted circuit breakers to ensure investor protection. Plans to privatize Boursa Kuwait mirror similar plans among other GCC states.

Saudi Arabia is set to launch an IPO for its stock exchange the Tadawul, which is the biggest bourse by market capitalization in the region, and only the second publicly-traded regional equities platform after the Dubai Financial Market. The Tadawul attracted two of the four IPOs during the third-quarter of 2017 and raised a total of US$110 million, making up 79 percent of total Gulf IPO proceeds in the third-quarter of last year. Though Kuwait’s new benchmark index has fallen each day since its April 1 debut and is now set for a loss of four percent in the past four sessions, the stocks traded remain attractive in the mediumto long-term.

One reason for this exuberance in the exchange is the country’s economic fundamentals that are stronger than that of its regional neighbors. Meanwhile, the reforms being implemented and planned have not only helped take Boursa Kuwait to the next level, but they also come in the wake of the recent promotion of Boursa Kuwait by FTSE to emerging market from a frontier market over two phases, the first in September and the second in December 2018.The Capital Markets Authority and Boursa Kuwait are also now expected to work on additional changes to further improve the operational infrastructure of the bourse.

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