Brunei to boost finance sector by launching its own stock exchange

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ministry of finance brunei
The Ministry of Finance building in Brunei, which houses the country’s monetary authority

Brunei Darussalam could soon drop off the global list of countries without a stock exchange, where it currently appears together with Cuba, Afghanistan, North Korea, Ethiopia, Chad and several other small nations.

Plans are that the tiny, but ultra-wealthy country will launch a securities exchange as early as by 2017 as part of a bundle of capital market initiatives by the Autoriti Monetari Brunei Darussalam (AMBD) which also include new capital market rules already introduced in February.

The stock exchange would boost the nation’s financial industry, the AMBD said, adding that it would also provide an alternative funding source for small and medium businesses and improve the country’s corporate governance.

The financial industry in Brunei has traditionally played a rather small role in the Sultanate’s oil- and gas-dominated economy. It accounts for about five per cent of GDP and comprises just three domestic banks, five foreign banks and three financial service companies after a number of financial institutions closed down their operations in the recent past.

There is no foreign exchange control in Brunei and local banks allow non-resident accounts to be maintained without restrictions. Licenses for brokers and international investment banking are readily available. The currency risk for investors is small as the Brunei dollar is pegged to the Singapore dollar.

But despite the government’s past efforts to boost the industry and promote Brunei as an offshore financial center modeled after Singapore and strengthen its Islamic finance sector, both initiatives never took really off, partly because of a lack of investor interest, the close presence of Malaysia’s offshore financial center of Labuan just off Brunei’s coast and little product variety in conventional, as well as Islamic banking.

The launch of its own stock exchange would lead to a more positive perception of Brunei as a financial market, the AMDB believes. But in the first place it should contribute to a necessary diversification of the nation’s economy which – due to its heavy dependence on oil and gas exports – currently struggles with low crude prices and a two-year recession which is expected to continue in 2015, with GDP shrinking by another 1.5 per cent.

Furthermore, oil and gas output has fallen by almost half since 2006, and reserves are believed to run dry in about 20 years. As countermeasures and apart from resuscitating the financial industry, the government wants to develop sectors such as tourism, halal products and manufacturing by beefing up the small and medium business sector, which presently account for almost ten per cent of the country’s GDP.

A stock exchange together with a financial market to speak of would also strengthen Brunei’s role in the Association of Southeast Asian Nations (ASEAN) and in the upcoming ASEAN Economic Community.

“At a regional level, it will allow us to take part in the ASEAN exchanges and move towards ASEAN integration,” the AMBD said.

But who could be the listing candidates for a Brunei stock exchange?

Basically, there are three segments where initial public offerings (IPOs) could emerge from. Firstly, larger state-owned firms could offer minority stakes or split off parts of their business through an IPO. There are talks about possible listings of Telekom Brunei, downstream oil and gas service firms and financial institutions including Bank Islam Brunei Darussalam, the largest and sole Islamic bank in the country.

Secondly, multinational companies have also shown interest in a new bourse. Last year, lighting solutions giant Philips Lighting said it would review the possibility of listing on a Bruneian exchange.

Thirdly – and this would probably be the largest market segment -, small and medium companies could use the stock exchange for equity funding as an alternative to loans from the few domestic banks. However, many of these smaller, mostly family-run companies would have to improve their financial reporting and corporate governance to get an IPO ticket and attract investors.

The initial focus of a stock exchange in Brunei would be on listing equities, adding bonds and sukuk at a later stage, the AMBD said. However, to issue both and get access to international bond markets, Brunei would need a sovereign rating which it presently doesn’t have.

Thus, observers believe that a real liquid market could be more than two years away for Brunei.

 

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Reading Time: 3 minutes

The Ministry of Finance building in Brunei, which houses the country’s monetary authority

Brunei Darussalam could soon drop off the global list of countries without a stock exchange, where it currently appears together with Cuba, Afghanistan, North Korea, Ethiopia, Chad and several other small nations.

Reading Time: 3 minutes

ministry of finance brunei
The Ministry of Finance building in Brunei, which houses the country’s monetary authority

Brunei Darussalam could soon drop off the global list of countries without a stock exchange, where it currently appears together with Cuba, Afghanistan, North Korea, Ethiopia, Chad and several other small nations.

Plans are that the tiny, but ultra-wealthy country will launch a securities exchange as early as by 2017 as part of a bundle of capital market initiatives by the Autoriti Monetari Brunei Darussalam (AMBD) which also include new capital market rules already introduced in February.

The stock exchange would boost the nation’s financial industry, the AMBD said, adding that it would also provide an alternative funding source for small and medium businesses and improve the country’s corporate governance.

The financial industry in Brunei has traditionally played a rather small role in the Sultanate’s oil- and gas-dominated economy. It accounts for about five per cent of GDP and comprises just three domestic banks, five foreign banks and three financial service companies after a number of financial institutions closed down their operations in the recent past.

There is no foreign exchange control in Brunei and local banks allow non-resident accounts to be maintained without restrictions. Licenses for brokers and international investment banking are readily available. The currency risk for investors is small as the Brunei dollar is pegged to the Singapore dollar.

But despite the government’s past efforts to boost the industry and promote Brunei as an offshore financial center modeled after Singapore and strengthen its Islamic finance sector, both initiatives never took really off, partly because of a lack of investor interest, the close presence of Malaysia’s offshore financial center of Labuan just off Brunei’s coast and little product variety in conventional, as well as Islamic banking.

The launch of its own stock exchange would lead to a more positive perception of Brunei as a financial market, the AMDB believes. But in the first place it should contribute to a necessary diversification of the nation’s economy which – due to its heavy dependence on oil and gas exports – currently struggles with low crude prices and a two-year recession which is expected to continue in 2015, with GDP shrinking by another 1.5 per cent.

Furthermore, oil and gas output has fallen by almost half since 2006, and reserves are believed to run dry in about 20 years. As countermeasures and apart from resuscitating the financial industry, the government wants to develop sectors such as tourism, halal products and manufacturing by beefing up the small and medium business sector, which presently account for almost ten per cent of the country’s GDP.

A stock exchange together with a financial market to speak of would also strengthen Brunei’s role in the Association of Southeast Asian Nations (ASEAN) and in the upcoming ASEAN Economic Community.

“At a regional level, it will allow us to take part in the ASEAN exchanges and move towards ASEAN integration,” the AMBD said.

But who could be the listing candidates for a Brunei stock exchange?

Basically, there are three segments where initial public offerings (IPOs) could emerge from. Firstly, larger state-owned firms could offer minority stakes or split off parts of their business through an IPO. There are talks about possible listings of Telekom Brunei, downstream oil and gas service firms and financial institutions including Bank Islam Brunei Darussalam, the largest and sole Islamic bank in the country.

Secondly, multinational companies have also shown interest in a new bourse. Last year, lighting solutions giant Philips Lighting said it would review the possibility of listing on a Bruneian exchange.

Thirdly – and this would probably be the largest market segment -, small and medium companies could use the stock exchange for equity funding as an alternative to loans from the few domestic banks. However, many of these smaller, mostly family-run companies would have to improve their financial reporting and corporate governance to get an IPO ticket and attract investors.

The initial focus of a stock exchange in Brunei would be on listing equities, adding bonds and sukuk at a later stage, the AMBD said. However, to issue both and get access to international bond markets, Brunei would need a sovereign rating which it presently doesn’t have.

Thus, observers believe that a real liquid market could be more than two years away for Brunei.

 

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