Experts call for revising compulsory purchasing regulations to enhance market fluidity in Kuwait.
In the heart of the Middle East, Kuwait's stock market is undergoing a significant review of its listing framework. The focus is on post-listing incentives and mandatory acquisition rules, with the mandatory takeover offer (MTO) rule at the forefront.
Experts question the viability of companies with a limited public float, as 97% control by a single shareholder leaves only 3% available for public trading. Such structures raise concerns about investor access and the stock's validity as a market opportunity. However, the MTO mechanism is a double-edged sword, with potential benefits and challenges.
On one hand, the MTO rule can lead to increased liquidity, transparent pricing, and enhanced investor confidence. A takeover offer often involves substantial transactions, attracting more investors and potentially increasing market activity. The requirement for a fair price ensures that the market reflects realistic valuations, reducing volatility and improving market stability.
Moreover, the MTO rule can promote better corporate governance by ensuring that companies operate with transparency and fairness towards all shareholders. This, in turn, can attract higher quality listings. By protecting minority shareholders, the rule encourages more reputable companies to list on the Kuwait stock market, making it more attractive to both domestic and international investors.
However, the dynamics in Kuwait, such as the evolving merger control regime and the absence of exemptions for foreign-to-foreign transactions, can add complexity to market operations. The MTO rule may not be conducive to attracting quality listings due to its potential to discourage investors and companies.
Two recent examples were cited where mandatory acquisition offers were rejected by company boards, with recommendations that shareholders decline the offers. The concern is that the MTO rule may deter liquidity rather than enhance it, as investors may avoid crossing the 30% threshold to avoid triggering an MTO.
The review aims to create a more attractive environment for quality listings by improving both pre- and post-listing requirements. Relaxing thresholds could promote market activity and attract more institutional investors. Experts argue that improving pre-listing requirements, such as minimum free float thresholds or disclosure standards, is not enough without supporting post-listing measures.
Kuwait's merger control regime, one of the most comprehensive in the GCC, affects transactions that result in a change of control. This broad scope can impact how companies navigate the market and make strategic decisions regarding listings and acquisitions.
Any future adjustments to the regulatory framework, such as changes in notification thresholds or clarity on key concepts, could further influence market performance and the quality of listings by enhancing regulatory certainty and investor confidence.
In conclusion, the MTO rule plays a crucial role in maintaining a fair and stable market environment, which can positively influence both market performance and the quality of listings on the Kuwait stock exchange. However, striking the right balance between regulation and market dynamics is essential to ensure a vibrant and attractive stock market for investors and companies alike.
- To bolster confidence in the Kuwait stock market and attract more quality listings, it's essential to consider post-listing measures, such as relaxing thresholds to encourage market activity and institutional investment.
- The MTO rule, while promoting transparency and corporate governance, may unintentionally deter liquidity by causing investors to avoid certain actions that trigger a mandatory takeover offer, which could potentially hinder stock market growth.
