Feb. 22, 2016


Khaled Abdulrazzaq Al Khaled

Kuwait

Khaled Abdulrazzaq Al Khaled

Chairman of the Board & CEO , Boursa Kuwait Securities Company (BKSC)

TBY talks to Khaled Abdulrazzaq Al Khaled, Chairman of the Board & CEO of Boursa Kuwait Securities Company (BKSC), on choosing privatization and its possible effects on the economy at large.

BIO

Khaled Abdulrazzaq Al Khaled’s career is deeply rooted in both Kuwait’s public and private sectors. In the public arena, he has served on Kuwait’s Municipality Council, the board of the Kuwait Chamber of Commerce and Industry as well as participating in venues of national policy and governance. In the private sector, he was Chairperson of Lulu’at Al Kuwait for Educational Services and Vice Chairperson of Kuwait Dairy Company. He holds a law degree from Kuwait University and a Master’s of Law in International Trade from the American University, Washington DC.

BKSC was established in 2014 as part of the privatization plan for the Kuwait Stock Exchange (KSE). What were the reasons for establishment?

KSE was founded as a self-regulatory entity in 1983 and operated as such until the promulgation of the Capital Markets Law in 2010, which brought about the formal establishment of the Capital Markets Authority (CMA) as the regulatory body for all securities activities in Kuwait. In recent years, KSE has trailed its regional peers and has witnessed a decline in liquidity exceeding 80% in the last 10 years and while the Dubai Financial Market (DFM) index, for example, has recorded growth of nearly 170% in the last five years, the KSE index has increased by only 5.5%. Privatization would also shield the stock exchange from government interference in operations and management and allow for a separation between shareholders, management and traders. This brings us to BKSC. The company was established in April 2014 with an authorized capital of KWD60 million ($198.5 million) by the Capital Markets Authority Commissioners' Council resolution 37/2013 and the preamble to law 7/2010. Our current goal is to assume administrative control of the KSE and to begin a 46-step strategic transformation plan that we have devised with input from all stakeholders to improve the exchange's current performance, turning it into a leading regional market. It is important to note here that law 7/2010 also outlined the ownership structure of the exchange, dictating the sale of 50% of the exchange to Kuwaiti citizens in an IPO, a percentage not less than 6% and not more than 24% to be allocated to government bodies and a percentage not more than 44% and not less than 26% to be auctioned to an international operator.

How will the privatization of the KSE impact the financial market in Kuwait and what does it signify about the transition occurring in Kuwait's economy?

The privatization of the KSE is pending the enactment of law 22/2015 in November 2015. This law amends certain articles of law 7/2010, including article 156, which grants the CMA the right to appoint BKSC to manage and operate the KSE during the transition period. This will last until the finalization of the privatization process as stipulated by article 33 of the same law. However, the change in legislation signifies that Kuwait is on a path of much-needed economic diversification, which was made all the more obvious by the recent decline in oil prices over the last year. There is value in the non-oil private sector that needs supporting legislature to allow it to reach its full potential, and that is what we are seeing now with the move to privatize the KSE. Additionally, the public sector in Kuwait is quite large, accounting for 70% of GDP and employs nearly 80% of the total Kuwaiti workforce. Public sector salaries in 2014 amounted to nearly 19% of Kuwait's GDP ($181 billion)—quite a staggering figure. The government is gradually reducing its role as an operator and focusing on being a regulator. The approval of a $116 billion development strategy for 2015-20 will see an increased role of the private sector from its current 26.4% to more than 40% and the positioning of Kuwait as a financial hub. A successful example from the region of a privatized exchange is the DFM, which was established in 2000 as a public institution and was transformed into a public joint stock company in 2005. Liquidity on the DFM jumped from 12.69% in 2005 to 158.5% in 2007, two years after its privatization. Market capitalization increased from $86.9 billion in 2005 to $138.2 billion in 2006.

Where does the KSE stand today, with regards to investor best practice standards, and where would you like it to be in the future?

KSE is getting a new lease on life. Although it is one of the oldest stock exchanges in the Gulf, it has been recording gradual declines in liquidity over the last 10 years from a high of KWD33.9 billion ($112 billion) in total value traded in 2007 to a record 10-year low of KWD5.9 billion ($19.52 billion) in 2014. This has partly been due to the lack of products meeting international standards and outdated infrastructure amidst growing investor requirements. As a result, the KSE today trails behind other stock exchanges in the Gulf in several metrics including value traded as a percentage of market capitalization, which dropped from 37% in 2007 to 19% in 2014 and value traded as a percentage of GDP—a metric that reflects the stock market's health versus the health of its domestic business environment. Between 2010 and 2014 alone, the KSE's value traded as a percentage of GDP dropped from 36% to 11% while all other regional markets registered positive growth rates (some as high as 2.5 times).

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