We spoke to Sh. Khalifa bin Ebrahim Al-Khalifa, Chief Executive Officer of Bahrain Bourse about the newly-announced Bahrain Investment Market and its readiness to accept new companies and startups within its platform.
Bader: Can you tell us more about the Bahrain Investment Market? Why is it an important deal, what’s in it for startups?
Sh. Khalifa: Through a regional market survey we conducted in 2013, we found several issues in the capital market to attract entrepreneurs. Some exchanges made it so easy on paper, but they fell short in reality. SME markets adopted the same avenues of lengthy bureaucratic processes that took more than a year to list some companies.
The Bahrain Investment Market targets fast-growing companies, ones interested in gaining better market value rather than exiting. The capital should be funded by the market, and possibly banks—but right now; they don’t have the support needed. If an entrepreneur goes to a bank and defaults just once, they’re pretty much done, because banks will request foreclosure.
Clearly, a solution was needed. This platform would bring in the buy side—private equity or institutional investors who believe in your business—and meet within the platform.
It’s truly one of a kind. It’s unfair to compare it to London AIM, Singapore Catalist, or other alternative markets. It might have a similar regulatory framework, but you need to look at the ecosystem itself which I would say is somewhere in the middle between Kickstarter and AIM.
Bader: Who is your target audience and what is the value-add of BIM ?
Sh. Khalifa: Our target audience is sponsors as well as prospective issuers. The value-add of the market is the cost-effectiveness and the simplified procedure and regulations.
Let’s look at procedure. In a normal IPO, you deal with at least 7 or 8 different institutions, along with the CBB and others. But with the Bahrain Investment Market, you only have to deal with two; the Bahrain Bourse for initial approvals and the sponsors, whom are specialized advisory firms approved by the Bahrain Bourse. Sponsors’ role is to provide assistance in completing the listing documents to fulfilling the financial disclosure requirements required by Bahrain Investment market.
In terms of cost, the platform is more cost-effective because it uses a capital-raising mechanism called Direct Public Offering, which will reduce the cost of listing by 90% of the average cost of a normal IPO.
The price is determined through an automated price discovery mechanism, which does not specify a pre-set price. Instead, the primary market determines the price through a bid and sell offer in the form of an auction, which will help determine a fair market price.
We have put controls in place to ensure it is fair to the issuer.
Bader: One of the other things you mentioned earlier was Kickstarter. Of course, a challenge there would be protecting the backers themselves. A lot of the time, they don’t get any kind of promise. The Bahrain Investment Market is in the middle. How does it protect bankers, and how does it protect investors?
Sh. Khalifa: That’s a very interesting question. In terms of protecting investors, it’s only to set a limit. We make sure this is not a company just on paper, by focusing on companies within the growth stage, and not the initial stages of funding of the company. The first two stages are where seed funding, accelerators, and incubators come into play.
You need to bring in investors who believe in your business. The essence is to make sure your financials are audited, as well. This is the most critical element.
Bader: How does the sponsor (specialized advisory firm) mechanism work?
Sh. Khalifa: Sponsors are specialized advisory firms with corporate financial advisory services experience. Each and every company interested in listing in the BIM must appoint and retain one throughout the process (pre and post listing). Sponsors are an integral part of the process, without them, companies in the growth stage would find it difficult to meet the standards of the capital market. Sponsors reduce the cost—since several advisors are not needed, only one.
In the BIM, the focus is on more than the funding. If you are listed on the exchange, and go to a bank risk manager, they will give you better credit ratings. This would discipline the management process and put the company on a regional and global platform. Being listed means that all of your information as a company will become readily available through global data vendors, providing the company with internal market coverage instantaneously.
Bader: We are witnessing the government initiative through the EDB and other agencies to make Bahraini startups focus on technology. How has that direction helped in the building process of this platform? What does it see in this platform, and how does it help with direction for startups?
Sh. Khalifa: Actually, it goes both ways, and this is what sets Bahrain apart from everyone else. Our ecosystem is not just the capital market system, it is built from the macro level, and you find the right ecosystems in each stage. We are only a part of a bigger ecosystem that is being created. We have been very blessed to have an aligned mindset with government agencies which support this initiative: EDB, Tamkeen, Tenmou, and the BDB.
Bader: Have you made it a priority, officially or unofficially, for Bahrainis to be a part of this platform?
Sh. Khalifa: Our main focus is Bahrain first, and then grow organically to the region. At the end of the day, it’s a multi-currency exchange, enabling companies from various jurisdictions to list. Many of the companies want to expand outside of Bahrain, and our role is to help them tap into the regional and global markets.
Bader: Do you believe that there are equal opportunities for both families mature businesses and small startups through this platform?
Sh. Khalifa: As long as you have the right prospectus with the right vision, the market will speak for itself.
Bader: What is Tamkeen’s role in this?
Sh. Khalifa: Tamkeen is our Strategic Partner, whose role is to fund part of the sponsor engagement fee on behalf of the companies’ interested to list. It is a tremendous support that makes it even more cost-effective for companies to list in the Bahrain Investment Market.
Bader: Many small and mid-scale companies in Bahrain complain about the challenge of gaining access to capital. Investors don’t want to take the risk when it comes to startups.
Sh. Khalifa: It’s that lack of proper framework that restricts the alignment of investors and entrepreneurs into a single platform. If companies choose to raise capital through a private placement, then the audience will be a limited to accredited investors only. Within the BIM platform, you get access to both retail as well as corporate investors, and this gives you the best market value. If there’s a platform, both the investors and the issuers will benefit from having a transparent market.
Bader: Thank you for this opportunity, we look forward to hearing great news about Bahrain Investment Market.