According to the Index of Economic Freedom 2017, Bahrain comes first in comparison to other GCC states in respect of Financial and Investment Freedom. That reputation has been further enhanced by the introduction of the Bahrain Investment Market (“BIM”), the rules for which were published in October 2016 (the “Rules”).
The BIM will allow small and medium sized companies to seek growth capital and is intended to support the SME sector within Bahrain, which accounts for approximately 30% of the GDP and employment within the Kingdom.
In establishing the BIM, the Bourse and the Central Bank of Bahrain plan to develop new routes for the financing of the SME sector within Bahrain at a lower cost than traditional banking finance.
The Rules require that the founders and owners of the company retain at least 30% of the share capital of the applicant for a period of two years following its entry on to the BIM. This requirement is intended to retain the entrepreneurial spirit of an SME and allow it to grow, rather than providing a way for founders to exit the business by selling their stake.
Listing on the BIM allows a distinct and separate route for SMEs to offer equity to the public to that of listing on the Bourse. The cost of listing on the Bourse is significantly higher, which may be prohibitive for an SME business.
The paid-up capital for applicants on the BIM is BHD 250,000, substantially less than the requirement on the main market (BHD 1,000,000).
The Rules do not contain any profitability requirement for participants, unlike the main market rules which require an applicant to have an annual turnover in excess of BHD 500,000.
The Bahrain Bourse undertakes to finalise the listing applications to the BIM within 30 days. The Bahrain Bourse may establish additional requirements for specialised industries listing on the BIM in due course.
There is an expectation on the part of the Bahrain Bourse that companies listed on the BIM can progress to the main market in due course as they grow and mature. In order to transfer, the company must have been listed on the BIM for a minimum of 6 months, have a minimum of 10% of its shares offered to the public and meet the capital requirements for the main market.
The Kingdom of Saudi Arabia intends to launch a separate equity market in early 2017, and there are reports that Kuwait and Oman will announce similar initiatives in the near future.
The introduction of the Bahrain Investment Market will bolster capital markets in the GCC and Bahrain in particular and provides alternative financial options for SMEs. This is a trend that we predict will continue during 2017, based upon recent capital market transactions (including takeovers) in the Bahrain financial services sector which we have been engaged on.
This article was first published by Lexis Nexis in the MENA Business Law Review in the 1st quarter of 2017.