Khaled AlKhaled, Vice Chairman and CEO of Boursa Kuwait, discusses the transformation of the Kuwaiti bourse under his leadership, as he looks to regain its reputation at a regional and international level and position Kuwait’s image as a reasoned and entrusted investment destination
Regarding the required diversification of the Kuwaiti economy that Vision 2035 requires, what role is the internationalization of Kuwait playing?
From $37 billion invested abroad in 2012 to $598 billion under management by KIA, Kuwait came first in terms of outward FDI in the Middle East region with total investments of $13 billion. This international investment strategy has enabled massive investment for the future generations and moving further into a knowledge-based economy. It also greatly contributed to minimizing the negative impact on the Kuwait economy during the crisis experienced in Kuwait (liberation and reconstruction, stability in financial crisis, today’s oil crisis).
Kuwait’s trading culture is a key part of its history and that also includes operating in international markets. Boursa Kuwait’s main objective is to progressively develop Kuwait’s exchange specifically and Kuwait as a whole, as a regional and international trading hub. In order to achieve this Boursa Kuwait has made major changes to the infrastructure of the stock exchange itself. In fact, none of our existing or potential stakeholders will be interested in entering the market if we are not conducting and maintaining business to meet internationally recognized standards. We have already conducted a benchmark study on international standards, and accordingly we are in the process of fully adopting best practices, in addition to targeting international institutional investors. We are also introducing new products that will help us maintain a competitive edge, targeting both the local and foreign investors, and responding to customers’ needs, while operating according to international best practices. Diversification of investments in the market is also key to attract investors.
Additionally, we focus on the trading processes, segmenting the market, enabling more transparency and efficiency and introducing a proper cycle of settlements. We are applying this methodology so that international investors become familiar with the market's infrastructure and business approach.
The existence of Kuwait Direct Investment Promotion Authority also helps in encouraging investors in Kuwait and we at Boursa Kuwait are keen to support its efforts.
To what extent is Boursa Kuwait acting as an investment magnet and contributor to the national economy?
Since its establishment in 2014 by the Capital Markets Authority (CMA), Boursa Kuwait has undertaken major changes to transform itself into an independent private entity to take over the management of the Kuwait stock market. The in-depth transition has supported us in initiating the development of the capital market into a world-class investment platform, which focuses on three main pillars; transparency, efficiency and accessibility. Besides attracting investments, one of Boursa Kuwait’s main roles is to support the diversification strategy of the country. Our strategy that we are currently rolling out is in line with Boursa Kuwait’s:
We believe that 2017 holds a great deal of potential for Boursa Kuwait. Our plan is to focus on SMEs (small and medium sized enterprises), which are a key part of the economy. Kuwait is the most active and conscious country in the region in this regards, as its primary focus is on promoting and preparing competent and knowledgeable generations that can fulfil their entrepreneurial capabilities.
Kuwait is a very active market in terms of entrepreneurship and existing SME’s which in time we hope will grow, some into large companies with both domestic and international interests, who will want to seek a listing with Boursa Kuwait.
What are the competitive advantages of Boursa Kuwait in front of other regional stock exchange and how is this privatization going to boost it?
Kuwait’s stock exchange is one of the region’s oldest stock exchanges, with a strong trading reputation that roots back to the 1960s. However, since the early eighties, the exchange lacked adequate regulations and investments that will allow it to compete effectively with emerging markets in the region.
Our focus is on achieving the following:
Kuwait boasts not only one of the Arab world’s oldest, but one of the world’s largest stock markets. For some time, however, the stock market in Kuwait had been losing some of its lustre, especially after the global economic collapse of 2007/8. The privatization of Kuwait’s stock exchange was initiated as part of the reforms to galvanize the Kuwaiti economy. Boursa Kuwait plans to address the reputation of the stock market in Kuwait by overhauling the existing trading infrastructure including international standards and best practice trading rules and price discovery mechanisms. It also plans to introduce new products such as ETFs, Sukuks, and exchange-traded bonds to allow for a wider range of trading activity and pursue emerging market status.
Boursa Kuwait’s objective is to improve the trading environment by creating a more efficient marketplace for private investors and publicly-listed companies to transact.
To date, Boursa Kuwait has worked towards achieving this by deploying a set of changes and developments across its operations, which ultimately deliver the element of transparency. These include but are not limited to the launch of the Company Information Portal (CIP), a tool designed by Boursa Kuwait, with the aim of providing a credible and updated information platform for all listed companies, which can be used as a reference site by all stakeholders. The development of the financial data available on the website through Boursa Kuwait’s affiliation with Thomson Reuters, the launch of the Market Makers rulebook in addition to the official launch of Special Trades transactions; a first for the Kuwait exchange.
Boursa Kuwait also embarked on two major partnerships. The first partnership is with the Public Authority for Civil Information (PACI) to deploy the Electronic Signature service, which acts as an Electronic Authentication Gateway for civil ID’s verification, in relation to the Company Information Portal (CIP) and the information provided by listed companies. This collaboration is of great value to Boursa Kuwait; especially since PACI is one of the few ISO 27001 certified organizations in Kuwait. Part of this partnership also entails a permanent office for PACI at Boursa Kuwait headquarters.
The second partnership is with the Middle East Investor Relations Association (MEIRA), whereby Boursa Kuwait will be playing a leading role in the support of the ‘MEIRA Kuwait Chapter’ in an effort to raise the standards of the Investor Relations role by rolling out specialized awareness and training programs. In line with this agreement, Boursa Kuwait aims to further establish and deploy best practices with regards to the existing investor relations activities and framework.
Further building on its new approach, Boursa Kuwait is now an official member of the International Capital Market Association and the UN Sustainable Stock Exchange Initiative.
What are the best practices that you are applying during 2017?
There are many new trading tools and systems that Boursa Kuwait is required to introduce to the Kuwait market in order to improve its level of performance and ensure that it operates in line with international standards.
In terms of best practice, Boursa Kuwait’s main focus will be to officially launch the complete Trading Rule Book which will be a first for the Kuwait exchange once it is released, and will guarantee a regulated exchange market on all fronts. To date, Boursa Kuwait has been equipping the exchange with basic tools and trading systems that will open doors to new investment opportunities. These include the trading rules for Interim Post Trade Model (IPTM1), Special Trades and several others in the pipeline such as OTC, Market Makers and others.
We are also looking at the importance of investor relations and the significant role it plays in developing the investor scene in Kuwait.
Which know-how from foreign stock exchanges are you most interested in bringing to Boursa Kuwait?
Boursa Kuwait is keen to create a robust exchange that serves all investors, and mainly one that operates efficiently and transparently, which will ultimately increase liquidity levels in the market. That said; our aim is to bring and equip the Kuwait market with the know how that will allow us to first; develop the exchange gradually to ensure all fundamentals are properly set up, second; ensure that all trading systems that are essential and key for the operation of any developed stock market are successfully set up and last but not least, ensure that all investors of all types find the opportunity to trade and invest in Boursa Kuwait. In order to achieve this, we need to remain open to any market know-how and expertise and cautiously infuse it into our exchange, to ensure that we deliver on our promises.
What are the main benefits SMEs will get from going public?
Stock markets can be an effective way of raising capital to enable SMEs to expand, however; there are many unique issues which need individual consideration. For an SME to be listed in the exchange, it requires a clear understanding of what is required from its end in order to be eligible and most of all to be fully convinced that this step is of benefit to its organization. Many SMEs are self-owned and it is sometimes very difficult for individual owners to ‘let go’ or lose control of part of what they see as their creation. And yet, often this is what is required if the company is going to attract enough investment to allow it to reach its potential. Another point is that SME’s are not set up, or have the resources, to address the full regulatory requirement of listed companies. A third point is understanding; companies need to be fully clear on what they will get from a stock exchange listing, so we think there is some sense in treating SMEs and their specific needs differently in terms of listing and specifically regulating for their needs.
At Boursa Kuwait we have prioritized SMEs as we see them as part of the successful future of Kuwait’s economy. We are the only stock exchange in the market, so it’s not simply waiting for companies to make a decision on their own, we have to take the lead. We have to convince companies that IPOs are in their interests and give them confidence that the stock exchange is one of the best ways of raising capital. To do this we need to showcase the benefits of listing and that the process is only positive. It makes sense to me to ensure that Boursa Kuwait is set up to accommodate the needs of its customers and of its potential customers. On this basis SME’s do need to be treated as a special case. We want to appeal to both international and new customers. The vision for Kuwait is to develop as a regional trading hub, and it is impossible for us to achieve this without taking into account smaller developing companies. Kuwait is a very entrepreneurial country and has many SMEs which in time we hope will grow into large companies with both domestic and international markets.
How do you plan to attract foreign investors to put their money into these companies shares through Boursa Kuwait?
In line with its strategy to strengthen Kuwait’s economic sector, the government of Kuwait has issued a law in 2013 (Law No. 116) establishing the Kuwait Direct Investment Promotion Authority (KDIPA) which is one of the government’s economic executive bodies. KDIPA aims at promoting direct investment in Kuwait, seeks to encourage local and foreign investments, and contributes in enhancing the investment environment in order to improve Kuwait’s economic performance along with its competitiveness.
The new investment law stipulates the existence of three different investment entities: the first one being a commercial company whereby foreign investors can have 100% shares and the second being a branch of a foreign company licensed to operate in Kuwait. As for the third entity, it allows the establishment of a representative office of a market research firm whose aim is to conduct market studies without engaging in any commercial activity.
Investors will benefit from the exemption of taxes, such as the national income tax for a maximum period of 10 years, in addition to partial or total exemption from custom fees on raw material, equipment, spare parts, and others. The law also accepts the utilization of lands and properties allocated to KDIPA that are under its supervision.
The new law also guarantees a fair and timely compensation to investors in case of their entities for the public interest. It also ensures freedom of external capital and profits transfer, the right to transfer or relinquish ownership of the licensed entity, the right to merge one or more entities, and the right to confidentiality on technical, economic, and financial information pertaining to the entity, in addition to safeguarding investment initiatives.