Experts urge overhaul of mandatory acquisition rules to boost Kuwait market liquidity

Investment sources have urged regulators to conduct a comprehensive review of the stock market listing framework, including post-listing incentives and the rules governing mandatory acquisitions, to ensure that recent amendments to listing conditions truly enhance market performance and attract quality listings.

At the center of concern is the mandatory takeover offer (MTO) rule, which requires any investor or entity acquiring over 30% ownership in a listed company to submit a public offer to purchase the remaining shares, reports Al-Jarida daily.

According to experts, this regulation has become a significant burden, discouraging investors and companies who seek to expand their ownership without assuming full control.

Sources argue that it is not enough to improve pre-listing requirements — such as minimum free float thresholds or disclosure standards —without supporting post-listing measures that ensure sustainable investor participation and liquidity.

One core issue is that a company can meet the 20% minimum free float requirement at listing, but later fall to as little as 3% if a takeover exceeds 90% ownership. This renders the stock nearly illiquid, raising concerns about investor access and the stock’s validity as a market opportunity.

Experts questioned how a company that is 97% controlled by a single shareholder can still be considered a viable listing, given that only 3% of its shares are available for public trading. This severely limits the appeal to institutional investors, funds, and portfolios looking for adequate market depth and free float availability.

Moreover, the MTO requirement is said to deter liquidity rather than enhance it. Investors may avoid crossing the 30% threshold simply to avoid triggering an MTO, which entails additional financial and procedural burdens. This stifles organic growth in ownership and prevents the injection of long-term, strategic capital into the market.

Two recent examples were cited where mandatory acquisition offers were rejected by company boards, with recommendations that shareholders decline the offers. This raises further questions about the effectiveness of the MTO mechanism, especially when the offered valuations are not compelling, and when the open market provides better exit options in terms of timing, flexibility, and return.

The sources also noted that regulations borrowed from larger global markets may not be suitable for Kuwait’s smaller, less liquid market environment. Global markets often feature larger corporate bases, higher trading volumes, and heavier fund participation, allowing for stricter rules without harming liquidity. In contrast, Kuwait’s market structure requires more flexible and localized policies to ensure healthy growth and investor participation.

Additionally, they recommended a re-evaluation of the caps placed on annual purchase percentages for major shareholders, suggesting that relaxing these thresholds could promote market activity and attract more institutional investors.