Building a Strong Local Market

BUILDING A STRONG LOCAL MARKET

QATAR CAPITAL MARKET REPORT 2020

YOUR PLATFORM TO GROW IN QATAR AND BEYOND

For more information visit www.qfc.qa and scan the QR code below YOUR PLATFORM TO GROW IN QATAR CONTENTS AND BEYOND FOREWORD 4

EXECUTIVE SUMMARY 5

QATAR CAPITAL MARKET OVERVIEW 6 Debt Capital Market 7 Equity Capital Market 10 Asset Management 12

CAPITAL MARKETS ROADMAP FOR QATAR 16 Pillar 1: Supporting the wider ecosystem 18 Pillar 2: Developing a comprehensive and diverse investment pool 26 Pillar 3: Attracting foreign investors and institutions 36

For more information visit www.qfc.qa and scan the QR code below

COVER PHOTO: AHMED ADLY / SHUTTERSTOCK.COM FOREWORD Qatar Capital Market Report 2020

FOREWORD

Qatar is strategically positioned to develop its capital markets, enabling them to facilitate commercial opportunities, reduce aggregate risk exposure and empower domestic financial institutions to expand. The country has thus far made great strides in capital market development, increasingly attracting international investors to its growing equity market and encouraging regular local bond and Sukuk issuances. Qatar Financial Centre (QFC) and its regulator have played an integral part in this journey, working together with the Qatar Central Bank (QCB) and Qatar Financial Markets Authority (QFMA) to ensure regulatory alignment and the effortless execution of national financial development priorities. In addition, we have endeavoured to attract and retain specialised financial players that both enable and complement the offerings of local banks. Together, Qatari institutions and their international partners have fortified the country’s ability to play a substantial role in the financial industry and facilitate further deepening of capital markets as they continue to mature.

A peer analysis of domestic capital market development has illustrated the need for continued regulatory support as well as private sector interest and participation. These key enablers allow for the expansion of both equity and debt capital markets, ultimately bolstering the respective economies in which they are located. The ability to tap local capital markets is especially important in trying times, such as we are all now experiencing amid the COVID-19 pandemic.

In recent years, we have been hard at work improving our regulatory, legal and tax frameworks to attract relevant financial institutions and enable the issuance of debt instruments. We have also ensured that our constituents have access to a fully independent and transparent judicial process through the Qatar International Court and Dispute Resolution Centre (QICDRC), protecting the interests of Qatar’s foreign investors.

QFC has prioritised rolling out rules that meet global best practices, particularly for asset managers and investment vehicles, and this has made cutting-edge investment activities accessible to the broader Qatari market. We have subsequently welcomed several niche asset managers to the QFC platform and witnessed the issuance of two private debt transactions. As part of its strategy, QFC has also set out to encourage the primary listing of QFC firms on the Qatar Exchange aiming to reach 5% of market capitalisation.

At QFC, we foresee a continued emphasis on the development of local capital markets, which will in turn expand opportunities for promising Qatari financial institutions. While the initial emphasis will be honed on the needs of local corporates and public sector entities, Qatari capital markets will soon be able to cater to international investors as well as our New Emerging Belt Initiative partners.

This in-depth report highlights major capital market advances in Qatar, identifies how comparator markets have forged ahead on their developmental journeys and how QFC and its regulatory partners can build further on its successes to become a regional world-class financial hub.

YOUSUF MOHAMED AL-JAIDA Chief Executive Officer & Board Member Qatar Financial Centre Authority Qatar Capital Market Report 2020 EXECUTIVE SUMMARY

EXECUTIVE SUMMARY

Over the last couple of years, capital markets The smallest of Qatar’s capital markets, investment have witnessed substantial growth, particularly in funds, were worth US$19.6 billion in AuM in 2019. global emerging markets. Amid global economic Nonetheless, it is brimming with potential as several uncertainty and the staggered liftoff of interest new investment managers choose QFC as their rates in developed markets, investors flocked to regional base of operations. The introduction of emerging capital markets seeking higher returns exchange-traded funds (ETFs), including Qatar’s and growth prospects. Qatar, supported by a solid first Islamic ETF, in March 2018 was met with high AA- rating and strong economic fundamentals, has international demand, with two more on the horizon and will continue to attract international investors. as well as real estate investment trusts (REITs). QFC is also home to an emerging venture capital and Qatar is on the path to developing deeper and more angel investment sector, with key players keen on diversified capital markets, backed by the Qatar funding Fintech and technology startups in Qatar. Financial Market Authority (QFMA) and the QFC Regulatory Authority (QFCRA), which have issued rules Qatari regulators are on track to potentially adopt preparing for the governance and offerings of existing a more comprehensive approach to capital market and new financial investments in the country. These development, currently considering potential regulations cover ETFs, REITs as well as investment markets and new avenues for foreign investment. funds and vehicles, among other market segments. The US$31 trillion sustainable/ ESG investment market presents Qatar with an opportunity to Bond and Sukuk issuance in Qatar reached US$28 establish a niche market in the region. Capitalising on billion in 2019, largely driven by government issuance. mandatory ESG reporting for listed companies and Over half of this figure was issued in international the burgeoning Islamic fund market, Qatar stands markets such as Taiwan, which saw the first Formosa ready to serve evolving investor preferences and Sukuk issued by Qatar Islamic Bank in 2020, raising their appetite for emerging market investments. US$800 million. Earlier in 2018, the Qatari government became the first sovereign to issue a Formosa bond, with repeat issuances in 2019 and 2020 for a total of US$17 billion outstanding. All three issuances were oversubscribed signalling high demand from Asian investors for Qatari debt, especially after its inclusion in the JP Morgan Emerging bond Index (EMBI).

Qatar is the region’s second-largest equity market with a market capitalisation of US$160 billion from 47 listed companies by the end of 2019. The government and Qatar Stock Exchange (QSE) have taken several measures, foremost among them increasing foreign ownership limits, to make the market even more attractive to foreign investors following its inclusion in the MSCI Emerging Market Index. Although IPOs have been few in recent years, they have included the listing of a family-owned company – Investment Holding Group – in 2017 as QSE has been keen on boosting listings from family-owned businesses, as well as SMEs on its parallel Venture Market.

5 QATAR CAPITAL MARKET OVERVIEW

West Bay in Doha. NO8 / SHUTTERSTOCK.COM Qatar Capital Market Report 2020 QATAR CAPITAL MARKET OVERVIEW

DEBT CAPITAL MARKET from GCC-based Islamic yield curve to facilitate pricing for financial institutions – a huge semi-sovereign and corporate Conventional international source of global Sukuk demand. issuances. One of the objectives bonds lead market as International issuance accounted of Qatar’s first Strategic Plan for recovery continues for 60% of total bond and Financial Sector Regulation is to Bond and Sukuk issuance in Sukuk issued by Qatar entities encourage local companies to Qatar totalled US$28 billion in since 2015, the majority (57%) raise funds from the domestic 2019, representing a CAGR of of which USD-denominated. market and reduce their reliance 28% since 2015. Growth in 2019 Other international issuances on foreign funding. This would was largely driven by conventional during this period targeted Asian warrant a regulatory initiative to bonds, which made up 83% of investors, including Chinese establish guidelines and policies total issuance, and particularly yuan and Japanese yen. to encourage corporate bond sovereign bonds, which included issuance by Qatari companies the successful issue of a US$12 Sovereign issuances leading in their home market. billion international jumbo bond the market; corporate in March 2019. Sukuk issuance bonds limited to banks Emerging markets sold a total grew by a moderate CAGR of Domestic – QAR-denominated US$2 trillion of sovereign bonds 6% from 2015, despite continued – issuance, accounting for in during 2019 – Q1 2020, the issuance from both government the remaining 40%, was highest level since 2016, of which and corporates. Government predominantly government- Qatari issuances accounted issuance has been the main issued. The Qatari government, for 1.5%. Qatar enjoys an AA- driver of Sukuk activity in Qatar, responsible for 99% of domestic rating by Fitch, notably higher but sovereign Sukuk remain issuance, continues to issue compared to most emerging limited to the domestic market sovereign bonds despite its market sovereign, which is as the geopolitical landscape in limited budget financing needs so supported by a strong sovereign the region hampered demand that it can maintain a benchmark net foreign asset position and

QATAR BOND AND SUKUK ISSUANCE (2016 – Q1 2020, US$ MILLION) 27,719

24,144 23,675

11,497

5,963 3,920 ———— 22,931 5,534 ———— 21,083 20,700 4,788 ———— ———— 3,060 2,975 3,120 ———— 800 2016 2017 2018 2019 Q1 2020

Sukuk Bonds Total Source: Refinitiv

7 QATAR CAPITAL MARKET OVERVIEW Qatar Capital Market Report 2020

external surpluses, and one of the tranche bond was 4.5 times a year prior at US$4.7 billion, or world’s highest ratios of GDP per oversubscribed, signalling 17% of total issuance, compared capita. Its bonds were included strong investor demand despite with 20% in 2018. Corporate in the JP Morgan Emerging uncertainty in global markets. activity across both the Qatari Market Bond Index (EMBI) in bond and Sukuk markets in the 2019. This gave the country The government had previously past five years has been almost access to a wider investment made a successful comeback to entirely driven by commercial base and raised demand for international markets with two banks, except for Sukuk issued Qatari debt, which offers higher jumbo bond issuances in April by Ezdan Holding Group in 2016 risk-adjusted returns compared 2018 and March 2019, each and 2017, and bonds issued to other emerging markets. raising US$12 billion. Both bonds by Ooredoo in 2016 and Qatar were heavily oversubscribed Reinsurance in 2017. These banks International bond issuance nearly by international institutional have been tapping European came to halt with in February investors, racking up order books and Asian markets where 2020 as panic ensued in global that exceeded US$50 billion institutional investors have shown financial markets, brought on each. This demonstrates not just interest in Qatari debt, since the by the spread of the COVID-19 the ability of Qatar to overcome diplomatic rift ensued in 2017. pandemic. The Qatari government the impact of recent regional issued a US$10 billion developments but also the Qatar’s solid credit rating, international bond in April 2020, strength of demand for emerging strong investor demand the first GCC state to issue debt market sovereign debt as yields and inclusion in benchmark following a plunge in oil prices diminished in developed markets. emerging bond indices present brought on by the pandemic, sizeable opportunities for new which raised borrowing costs Corporate bonds and Sukuk corporate issuers other than for the governments of oil- issued by Qatar-based entities in financial institutions. Qatar- producing countries. The triple 2019 were marginally lower than based corporates are yet to

QATAR BOND AND SUKUK ISSUANCE – SOVEREIGN VS. CORPORATE (2016 – Q1 2020, US$ MILLION) 27,718

24,144 23,675

4,685 ———— 23,033

4,705 ———— 18,970

13,707 ———— 11,497 10,437

3,842 ———— 7,655 3,920

3,920

2016 2017 2018 2019 Q1 2020

Sovereign Corporate Total Source: Refinitiv

8 Qatar Capital Market Report 2020 QATAR CAPITAL MARKET OVERVIEW

be persuaded to tap the local Qatari issuers target Asian markets Taiwan is a particularly attractive bond markets in favour of more to diversify funding sources destination for issuers because accessible and cheaper bank Qatari issuers turned to new its banks’ high degree of liquidity financing. These corporates may markets as changes in the allows borrowers to sell debt at be coaxed by relaxing capital region’s economic landscape lower costs compared to other issuance regulations and more emerged in 2017, mainly to markets. The Qatari government targeted awareness efforts as East and Southeast Asia, to has also listed parts of its last three to the benefits of issuing bonds diversify their funding sources. international bond issuances on compared to bank financing as a Qatar National Bank has been a the Taipei Exchange, becoming viable and attractive alternative. particularly active issuer, bringing the first sovereign to do so in to market Formosa bonds, 2018. The 30-year tranches of Large corporates in the energy, which are issued in Taiwan but these issuances, worth US$17 transport and logistics sectors denominated in currencies other billion combined, were issued as make ideal candidates for issuing than the New Taiwan dollar, and Formosa bonds. Taiwan’s domestic bonds and Sukuk since they renminbi-denominated Dim Sum insurance sector has been the require substantial financing bonds, in addition to bonds largest investor in Formosa for working capital over a denominated in yen, Hong Kong bonds due to its preference for long-term horizon. Issuing debt dollars and Singapore dollars. The long-maturity investments. instruments will help diversify region’s first renminbi clearing the company’s funding base, centre was established in the Despite their local listing in and it is also a less restrictive Qatar Financial Centre (QFC) in Taiwan, Formosa bonds are now compared to bank financing as 2015 to facilitate trade, funding classified as foreign investments the debtors have no say over transactions and investments on local insurers’ books, capped the running of the business between China and the wider at 62.5% of investable assets, – granting them significantly Middle East region under following increased restrictions greater freedom of operations. China’s Belt & Road Initiative. by Taiwan’s Financial Supervisory

QATAR BOND AND SUKUK ISSUANCE – CURRENCY BREAKDOWN (2016 – Q1 2020, US$ MILLION)

USD 62.44%

QAR 33.69% EUR 1.69% CNY 0.84% CHF 0.48% JPY 0.36% GBP 0.27% HKD 0.11% SGD 0.08% AUD 0.04%

Source: Refinitiv

9 QATAR CAPITAL MARKET OVERVIEW Qatar Capital Market Report 2020

Commission (FSC). In June 2019, fund M&A transactions as part provide a safety net for Qatari the FSC permitted the issuance of of the anticipated consolidation equities during the year. Formosa Sukuk capped at 10% of wave across certain industries. banks’ net assets and 62.5% for Initial public offerings (IPOs) have insurers (within the limit on foreign been limited in the past three bond investments). Immediately years amid a global slowdown following the FSC decision, Qatar EQUITY CAPITAL MARKET in new listings, however slower Islamic Bank debuted a US$800 than elsewhere in the world. There million Formosa Sukuk issuance QSE seeking diversification have been just four IPOs in Qatar in February 2020. This issuance through IPOs in the past five years, the most was upsized from an initially The Qatar Stock Exchange (QSE) recent of which was the Baladna announced US$650 million level had a market capitalisation of IPO in December 2019, which due to high investor demand. US$160 billion in 2019, up from raised US$395.6 million in capital. US$152 billion in 2015, making it Baladna is a premium dairy and Looking forward, the economic the second-largest stock market beverage company, with a leading pressures COVID-19 has posed in the GCC. As the recent oil share of the domestic market. on some industries will likely price crash in the wake of the Nonetheless, QSE has announced force them into consolidation in COVID-19 pandemic hampered a robust pipeline of upcoming IPOs, coming years. The strong global the performance of regional comprising listing from various investor demand for Qatari debt, and global stock markets, the industries. At least two of these are coupled with near-zero interest exchange declined 21.3% during expected during 2020, including rates, against a backdrop of the first quarter of 2020. However, industrial and retail companies. accommodative bond markets Qatar’s robust economy, solid present Qatari corporates with corporate fundamentals and a QSE saw a new listing of an opportunity to raise cheap QAR 10 billion (US$2.75 billion) a family-owned corporate, dollar-denominated debt to stock purchase program should Investment Holding Group

QSE MARKET CAPITALISATION (2016 – Q1 2020, US$ MILLION)

44 45 46 47 47

161,735 160,095 154,798

129,677 126,522

2016 2017 2018 2019 Q1 2020

Market Capitalisation Number of Companies Source: Qatar Stock Exchange

10 Qatar Capital Market Report 2020 QATAR CAPITAL MARKET OVERVIEW

Market liquidity has been boosted by increased trading activity from foreign investors. Non-Qatari institutional investors have become much more active in the past five years, with trading transactions having risen to 42.6% of total trading value in 2019.

(IHG) in 2017. There is a similar pandemic that has wreaked payout obligation, and investors listing of a family-owned retail havoc on the global economy and can be called upon for further company on the horizon. The financial system, causing oil prices funding through rights issues. IHG IPO raised share capital to plummet below US$30/bbl. This Also, the disclosure requirements worth US$228 million, which is expected to place significant by the stock exchange will was open to Qatari nationals, pressure on banking liquidity and, ensure that companies have wholly Qatari-owned institutions although interest rates will remain strong corporate governance. and QSE-listed companies. low, banks will now be increasingly hesitant to extend new credit lines. Other than the QSE’s main board, Qatari businesses have been less the exchange has backed the inclined to pursue equity funding QSE has been active in raising government’s aims under the Qatar as they have enjoyed easy access awareness among small business National Vision 2030 to support to cheaper bank financing. Most owners and family-owned development of the SME sector by corporates, especially family- companies of the advantages launching the QE Venture Market owned businesses, also have of listing on its market. IPOs in 2015. This market serves as concerns about the impact of offer businesses an alternative a dedicated stock exchange listing on their ownership stake funding channel that has several for SME listings, which despite and control of their assets. advantages, such as granting possessing possibly shorter track management more flexibility in records and higher risk profiles, However, this is set to change running its operations. It offers allows them to access funding in the wake of the Coronavirus long-term financing with no through the equity capital market.

11 QATAR CAPITAL MARKET OVERVIEW Qatar Capital Market Report 2020

Investments encouraged by The inclusion of QSE in these ASSET MANAGEMENT stock split, raised foreign indices has and could further ownership limit, ESG reporting attract massive investment QFC epicenter of Qatar To attract more individual investors, inflows from asset managers asset management QSE implemented a 1:10 stock and institutional investors Qatar has a growing asset split in 2019 across all companies who track these benchmarks. management sector, with assets on the exchange reducing the It also requires the QSE to under management (AuM) totalling nominal value of shares to QAR 1. improve its transparency and US$19.6 billion at the end of The purpose of the stock split reporting, legal frameworks and 2019. With the increasing volatility was to improve market liquidity overall investment environment, in global markets driven by through increased trading activity thereby making its constituent COVID-19, investment portfolios (generating more shares available stocks still more attractive worldwide will be undergoing for trading) and to make singular to foreign investors. Foreign rebalancing and perhaps equity shares more affordable investors currently own structural reformation in 2020. to the investors. Within the first 11.5% of QE-listed shares, on Investment managers will also month following the stock split, aggregate, compared to 6.3% begin to rethink their operating weekly trading volumes on the at the end of 2013 (before the models, aiming for leaner and exchange more than doubled ownership limit was raised). more efficient structures. This (154% increase) driven by foreign may occur to a lesser extent institutional investors in addition Qatar-listed stocks also became for Qatar-focused funds as to increased trading activity a more attractive proposition substantial financial incentives from local individual investors. for foreign investors following offered to the private sectors and the introduction of responsible government support for listed Market liquidity has been boosted investment mandates, with Qatari corporates help maintain by increased trading activity from environmental, social and a relatively stable outlook for the foreign investors. Non-Qatari governance (ESG) reporting domestic equity market. With institutional investors have soon becoming mandatory domestic portfolios somewhat become much more active in for all listings. However, the protected in the short term, the past five years, with trading concept is not new, with ESG still ongoing infrastructure and transactions having risen to 42.6% reporting having been carried existing free zone developments of total trading value in 2019 out since 2016 on a purely in Qatar present both local and from 26.6% in 2015. The rise in voluntary basis. QSE-listed foreign investment managers activity followed an increase in companies will now be required with opportunities to introduce foreign ownership limits for QSE to report their ESG metrics new, and potentially more listed companies to 49% in 2014 through the QSE Sustainability lucrative, investment products from 25%. This was done as and ESG platform, which was touched upon later in this report. part of Qatar’s commitment to launched in 2018 to uphold increase foreign ownership limits the exchange’s commitment QFC-based investment managers following the country’s upgrade to the Sustainable Exchanges dominate Qatar’s fund market to ‘emerging market’ status on initiative. Three listed Qatari handling over half the market’s the MSCI Emerging Market Index corporates, Ooredoo, Doha AuM. Outside of QFC, there are in 2014., which subsequently Bank and Qatar National Bank, two smaller asset managers, attracted US$2.2 billion in foreign have already begun their ESG which are fully Shariah-compliant. capital inflows by 2019. Qatar rating processes with others Some of the local banks have was similarly upgraded on the soon to follow. Concomitantly, also been active in the funds FTSE Russell Global Equity Index Qatar was one of the earliest space, including Qatar National Series over 2016 and 2017, further adopters of corporate Bank and Doha Bank. enhancing the stock market’s governance best practices under depth and liquidity and expanding the United Nations Principles QFC-based investment managers, its international investor base. for Responsible Investment. such as Al Rayan Investment and

12 Qatar Capital Market Report 2020 QATAR CAPITAL MARKET OVERVIEW

PHOTO: HASANZAIDI / SHUTTERSTOCK.COM

13 QATAR CAPITAL MARKET OVERVIEW Qatar Capital Market Report 2020

QInvest, dominate the Shariah- Qatar –a joint venture between communities, mainly in Southeast compliant funds space in Qatar Credit Suisse and the Qatar Asia and sub-Saharan Africa. with US$1.6 billion combined AuM Investment Authority – is another by the end of 2019. Established active player. Aventicum is now Earlier in 2018, Qatar Insurance in QFC in 2007, QInvest is the the new manager of the QE Company has relocated its country’s largest investment Index Exchange Traded Fund subsidiary multi-asset class bank and one its most active (QETF), Qatar’s first ETF, after manager – Epicure Investment fund managers, offering a range it purchased several funds and Management – to Qatar, which of Shariah-compliant funds. In mandates from Amwal in a bid was established at QFC. The addition to hosting the QInvest to strengthen its local presence. asset manager is one of the Managed Account Platform (QMAP) largest in the region, managing multimanager service, it has also The sector has garnered much assets worth US$5 billion, successfully launch four flagship interest with several new through an investment offering funds through its innovative Ijara investment managers establishing including UCITs and SICAV platform. Al Rayan Investment, a operations in QFC, which has funds. Epicure will be offering subsidiary of Masraf Al Rayan, is afforded investment managers investment business consultation another successful QFC-based tax exemptions for setting up service, aiming to develop and Islamic fund manager and Qatar’s sizeable operations, subject to grow the domestic fund market. largest Sukuk manager. Al Rayan conditions. Recently joining QFC manages the Al Rayan GCC Fund, in 2019, Sanguine Investment New ETF launches transforming the world’s largest Qatar-based Managers has received regulatory asset management landscape mutual fund and largest equity approval for the launch of its The asset management GCC fund. It has also launched flagship Sanguine Protected landscape in Qatar largely Qatar’s first Islamic ETF, making Fund, with more funds held centred on mutual funds in Al Rayan the manager of the in the pipeline. The fund will the past, but the introduction world’s largest Islamic equity ETF. be focused on developing of exchange-traded funds sustainable infrastructure in (ETFs) over the past two On the conventional side, emerging markets that will years has transformed the Aventicum Capital Management simultaneously benefit local composition of the market.

QATAR FUNDS AuM (2016 – Q1 2020, US$ MILLION)* 24,842

20,689 20,608 20,875 19,621

2016 2017 2018 2019 Q1 2020

*Based on disclosed data Source: Qatar Stock Exchange

14 Qatar Capital Market Report 2020 QATAR CAPITAL MARKET OVERVIEW

In March 2018, QFC-based “Epicure was established to leverage the investment investment manager Amwal expertise of the QIC team and meet demand from partnered with Doha Bank to institutional investors seeking regional and emerging launch Qatar’s first ETF on the market (EM) positions. With the planned launch of QSE. The QE Index ETF tracks EM fixed income products and global private equity, the Qatar Exchange Index of the top 20 listed companies by coupled with our existing equity and real estate market capitalisation and liquidity. portfolios, Epicure aspires to be a globally recognised Qatar’s first Shariah-compliant EM investment firm. ETF soon followed from Al Rayan Investment, making Qatar the The asset management community is also supported second-largest of just nine by QFC’s accommodative structure and favourable jurisdictions to have rolled out tax regime. Looking forward, Qatar’s economic Islamic ETFs. The Al Rayan Qatar diversification strategy, which includes a focus ETF tracks the performance of on fintech, finance, logistics & manufacturing and the QE Al Rayan Islamic Index Public Private Partnerships (PPPs) present unique of Shariah-compliant stocks traded on the QSE. It is the opportunities for the investment community.” world’s largest Islamic equity ETF and the largest ETF in Sh. Hamad Al Thani the GCC. The ETF market is Senior Vice President – Investment & Treasury set to grow with the expected Qatar Insurance Company (QIC) launches of two new ETFs. SEO, Epicure Recent and planned launches of ETFs demonstrate the efforts being made by asset managers to mainly attract international and “Al Rayan Investment (ARI) is proud to have been the sophisticated Qatari investors. first Islamic investment house established on QFC’s They also enable asset managers platform. QFC has played an active role in ARI’s journey to tap into the retail market, as to be a regionally respected brand as well as the the structure of exchange-traded largest Islamic asset manager in Qatar with over US$1 funds makes them more readily billion in assets under management. QFC’s supportive accessible to retail investors. The minimum investment in the infrastructure has enabled ARI to assemble a world- ETF is the cost of one share, class team of talent that now manages the world’s which is less than QAR 2.1 largest Islamic equity ETF and largest Islamic Gulf equity (US$0.58), whereas investing in fund. As its ambitions and mandates grow, ARI aims to mutual funds in Qatar requires remain a key participant in the development of Qatar’s a minimum initial investment capital markets; and the QFC, which has grown to of QAR 20,000 (US$5,500). be a vibrant financial centre, will remain the base for The next addition to the Qatari all our operations.” fund market is set be real estate investment trusts (REITs) after the Qatar Financial Centre Regulatory Akber Khan Authority (QFCRA) amended its Senior Director – Asset Management rules to allow their introduction, Al Rayan Investment while the QSE is looking into listing this type of fund.

15 CAPITAL MARKETS ROADMAP FOR QATAR

West Bay in Doha. HASANZAIDI / SHUTTERSTOCK.COM Qatar Capital Market Report 2020 CAPITAL MARKETS ROADMAP FOR QATAR

In the following section, we look at potential directions towards establishing Qatar as a world-class investment hub, based on global practices implemented in a selection of leading and upcoming capital market jurisdictions.

SUMMARY — KEY RECOMMENDATIONS FOR QATAR’S CAPITAL MARKET DEVELOPMENT

ESTALIS A OIT COMPREESIE MASTERPLA highlighting government commitment to capital market development EACE RELATOR FRAMEORKS considering the changing market landscape, foreign investors POSITIO QATAR AS A REIOAL and incentives for issuers DESTIATIO for sustainable investment hub capitalising on Islamic funds market OOST IPO ACTIIT through government privatisation and incentivising family business and SME listings IMPROE EFFICIEC OF CORPORATE OD ISSACE PROCESS and introduce cost savings to encourage local corporates issuance ITRODCE E IFRASTRCTRE AD COMMODIT FDS offering exposure to mega government infrastructure projects CREATE A DERIATIES MARKET, initially offering single-stock futures contracts

SET P PRIATE PESIO SCEMES targeting expat workforce

PROIDE OERMET SPPORT AD ICETIES to attract more VC and PE investment ICORPORATE LOCKCAI TECOLO in trading infrastructure to enhance QSE capabilities EPLORE PARTERSIPS IT FOREI RELATORS, exchanges and clearing houses

17 CAPITAL MARKETS ROADMAP FOR QATAR Qatar Capital Market Report 2020

PILLAR 1: SUPPORTING THE efficiency. The most recent plan broader coverage of products and WIDER ECOSYSTEM included strategies to promote services, which is conducive to capital formation by increasing innovation in capital markets. The Establishing capital markets as private sector participation in the plan also aims to encourage active a government priority with sub- VC and PE industries, supported stakeholder participation through sector initiatives by formalised regulation and a self-regulation and strengthened The further development of more effective tax regime. Another corporate governance, to enhance Qatar’s capital markets and priority is widening access to confidence in the integrity and their success depend upon capital markets by facilitating soundness of Malaysia’s capital strong government support the growth of small- and mid- markets. Qatar’s plan could reflect and commitment. Some of cap companies’ public listings very similar priorities, taking the objectives of the Qatar (IPOs), in addition to opening the local context into account. National Vision (QNV) 2030 bond market to new economic and both Strategic Plans for sectors. Other strategies include More recently, and in the the Regulation of the Financial promoting SRI investments, Gulf region, Saudi Arabia had Sector have addressed some establishing private retirement introduced plans for capital market aspects of capital market schemes, deepening secondary development as a main pillar of development, mainly regulation. market liquidity and expanding its Financial Sector Development However, establishing a joint the foreign investor base through Plan (FSDP) in 2018. Although comprehensive masterplan strategic partnerships with its launch was also intended in dedicated to capital markets by other exchanges abroad. 2017, Saudi’s Capital Market financial sector regulators, would Authority (CMA) issued its Capital further underline the government’s The plan also outlined governance Market Strategic Plan in 2019, commitment to establishing Qatar strategies that ensure a robust setting an ambitious roadmap to as a world-class investment regulatory approach to govern a match leading capital markets hub and financial centre. changing market landscape with a such as London and New York.

Capital markets in Malaysia have significantly broadened and deepened with the implementation of Securities Commission “As one of the leading asset managers in the country Malaysia’s (SC) Capital Market and the region, QInvest is fully supportive of the Masterplans, supported by initiatives promoting the growth of local capital Bank Negara Malaysia (BNM). markets across all asset classes. Qatar provides During the implementation a strong platform for us and lets us work with an of the SC’s first masterplan, increasingly astute and discerning investor base who which ran from 2001 to 2010, the size of Malaysia’s capital have shown a strong rotation towards domestically markets tripled to more than based managers in recent years. Moreover, the RM 1 trillion (US$237 billion). proactive approach taken by the regulators towards local harmonisation and global partnerships, gives us Today, Malaysia boasts robust a great platform to work with a growing regional and and internationally recognised global client base.” regulatory frameworks that have facilitated growth, liquidity and innovation in capital markets. The main themes of Malaysia’s Dr. Ataf Ahmed current (second) masterplan are Head of Asset Management QInvest growth and governance, setting out to improve capital market

18 Qatar Capital Market Report 2020 CAPITAL MARKETS ROADMAP FOR QATAR

SC MALAYSIA CAPITAL MARKET MASTERPLAN 2001-2010 – The Saudi government and the KEY INITIATIVES CMA have made great strides during its initial implementation Issuers Deepening and broadening the issuer base by improving access of its Capital Market Plan. Since to capital markets, focusing on domestic corporate bond 2017, the government has market development. n Centralised the regulatory authority to reform and been stimulating activity in the streamlined the issuance process for corporate issuers domestic debt market through n Developed frameworks that encouraged the development of its sovereign Sukuk program new product categories, including Sukuk REITS, MBS and ABS. that has made it the second- n Permitted and encourages foreign corporates to issue local largest sovereign Sukuk issuer currency bonds. globally. By reducing issuance costs, the CMA has encouraged Investors Enhancing corporate governance and shareholder protection and liberalising the investment management industry. more activity in the primary debt n Issued recommendations and guidance to enhance market, and it has facilitated corporate governance, disclosure and transparency based more activity in the secondary on international best practice market by lowering commissions n Expanded the range of products and services by allowing institutional investors to invest in unlisted VC and PE funds and zakat (tax) exemptions for and exchange-traded derivatives and outsource fund sovereign Sukuk investors. management to third parties. n Liberalised the FX administration rules, which facilitate larger trade and FDI flows. The Saudi stock exchange, Tadawul, has successfully Market Modernising equity and derivatives exchanges to improve the launched its parallel market, Institutions competitiveness and efficiency of market institutions and to Nomu, although its listings do enhance liquidity and efficiency in the secondary market. not yet include any small-cap n Formed Bursa Malaysia from the merger of two equities exchanges, three derivatives exchanges, three businesses. Despite plans for clearinghouses, and one central depository. several listing of government n Demutualised the exchanges to raise capital to fund their entities, only one government- development, enhance corporate governance and incentivise exchange to serve interests of all stakeholders. related IPO was completed thus far. Relatedly, the Saudi

Market Consolidating and reforming the brokerage industry to increase REIT market has boomed Intermediaries economies of scale and scope. since its first listing in 2016 n Issued policy outlining a strategy for fostering mergers and that followed the release of a acquisitions of brokerage firms dedicated regulatory framework. n Established incentives for the creation of a new class of full-service “universal brokers” (UBs) to offer a wider range Regulations were also issued for of services derivatives trading in advance n Deregulated the brokerage industry’s fixed-fee structure, of Riyadh’s upcoming launch branching restrictions and foreign participation of a new derivatives market.

Niche Market Developing an Internationally Competitive Islamic Financial The Envisioned Plan for Qatar Center n Established a viable parallel market for Islamic financing and A masterplan for Qatar’s capital investment” markets should identify specific n Developed world’s first Islamic accounting standards initiatives to encourage more n Issued new regulations on Sukuk and Islamic unit trusts primary market issuances, n Provided tax incentives to further develop the Sukuk market facilitate liquidity in secondary n established the Malaysia International Islamic Financial Center (MIFC) markets, establish a wider n entered into mutual-recognition agreements (MRA) with the investment pool, and promote UAE and Hong Kong on the cross-border marketing and foreign investment through the distribution of Islamic funds. development of the appropriate regulatory frameworks, market Source: Center for Financial Markets, Milken Institute infrastructure, capacity building

19 CAPITAL MARKETS ROADMAP FOR QATAR Qatar Capital Market Report 2020

should be a top priority in the “Located in a country with highest per capita income, masterplan with a focus on the Qatar Stock Exchange (QSE) is not only an driving corporate bond and unrivalled platform for business owners to raise Sukuk issuance. With a sovereign capital, but it has rapidly emerged as an investment benchmark yield curve in destination for long term foreign institutional investors place, regulators must focus on looking for opportunities in emerging markets. Qatari eliminating bottlenecks in the issuance and listing processes stocks are well regarded as defensive plays providing that face corporate issuers stable long term returns in terms of both dividends and and consider the introduction capital appreciation. of cost-saving incentives to attract corporate issuers. QSE is home to the world’s largest Islamic equity ETF, offering access to resilience and robustness of Qatari To spur investor interest, economy. QSE also offers access to the blue-chip the Qatari government and companies and crown jewels of Qatar in one single trade regulators should identify a via QETF listed on the bourse. Both these ETFs have been niche segment of the market offered in partnership with QFC based asset managers. that would give the country a competitive advantage over its The QSE is now on a mission to transform itself as regional counterparts. Taking an investment destination of choice for ESG sensitive into consideration current trends in financial markets, sustainable investors by encouraging voluntary disclosure of investment points the way forward ESG relevant information by its listed companies. We and it is recommended as the are working with market participants to develop a specialised area that could place sustainability and ESG benchmark index for QSE listed Qatar ahead of the curve. companies. Watch this space!” Enhancing regulatory frameworks Regulation of Qatar’s capital

markets was significantly Mohsin Mujtaba Product and Market Development overhauled during the Qatar Stock Exchange implementation of the First Strategic Plan for the Regulation of the Financial Sector 2012- 2017. Under this plan, Qatar’s three financial regulators — QCB, QFMA and QFCRA — and incentivisation programs. of application and approval began the process of regulatory More importantly, the plan should processes and regulatory harmonisation to close gaps and emphasise the regulatory support requirements, to ensure that eliminate regulatory arbitrage, required to encourage active procedural bottlenecks do not achieving more consistent participation in capital markets. impede market development. and comprehensive regulation Malaysia has set an example for of the financial system. Qatari regulators have ensured overhauling procedures through that the necessary regulatory updated regulation, which has After becoming an independent frameworks are issued and helped establish one of the most regulator, QFMA issued regulations updated before a new investment active debt markets in Asia. for existing securities such as product is introduced to the equities, bonds and Sukuk. It also market. However, it is crucial The long-term growth of Qatar’s issued rules preparing for the to scrutinise the efficiency domestic debt capital market governance and future offerings

20 Qatar Capital Market Report 2020 CAPITAL MARKETS ROADMAP FOR QATAR

Doha Stock Exchange. PHOTO: A G BAXTER / SHUTTERSTOCK.COM

21 CAPITAL MARKETS ROADMAP FOR QATAR Qatar Capital Market Report 2020

COUNTRY COMPARISON: CAPITAL MARKET DEVELOPMENT

Emerging Markets MENA GCC

Malaysia Brazil South Africa Indonesia Turkey Egypt Saudi Arabia Qatar

Capital Overall and Islamic Capital Market Authority Markets Capital Markets Strategic Plan Masterplan

SME LEAP Market Bovespa Mais AltX Acceleration Board Emerging Companies Nile X Nomu Venture Market Market Market Ecosystem Derivatives Bursa Malaysia Part of B3 main board Part of JSE main Indonesia Commodity VIOP Derivatives Market Exchange Derivatives board and Derivatives Exchange

Incentives Tax deduction for Income tax deduction Relaxed regulatory and For listed companies: Tax exemptions for specific sukuk for listed companies listing requirements for IPOs investment managers structures n Increased loan limit Financial guarantee n Fast-track government scheme for bonds/ services sukuk issuers n preference for government procurement n No IPO requirement for Nomu listings Issuers n Reduced fees for corporate sukuk issuers

Cross- Cross-listing abroad Cross-listing abroad Cross-listing abroad Cross-listing abroad Cross-listing abroad Secondary listing of foreign listing equities Secondary listing of Secondary listings Secondary listing of Secondary listing of foreign Secondary listing of foreign foreign equities through Brazilian foreign equities equities equities Depository Receipts

Foreign Varies up to 70% Varies up to 100% Varies up to 100% 49% 49%, no limit for foreign 49% Ownership strategic investors Limit

Incentives Tax benefits for VC Tax reduction for Income tax deduction Corporate income tax Zakat exemption and lower Tax neutrality between sukuk funds and angel long term angel for investors in VC exemption on equity capital commissions on domestic and bonds investors investments funds gains sovereign sukuk Government grant for Special tax treatment WHT exemption on equity PEs investing in local for foreign investors and coupon income capital business gains Tax emptions for VC and Angel investors in eligible ventures Investors

Alternative n Derivatives n Derivatives n Derivatives n Derivatives n Derivatives n ETFs n ETFs n ETFs investment Offering n ETFs n ETFs n ETFs n ETFs n ETFs n REITs n REITs n VC n REITs n REITs n REITs n REITs n REITs n VC/PE n VC/PE n VC/PE n VC/PE n VC/PE n Private pension n VC/PE n Private pension n Private pension n Private pension n Private pension n Private pension n Infrastructure funds n Private pension n Hedge Funds n Hedge Funds n Hedge Funds

Source: Refinitiv Analysis

22 Qatar Capital Market Report 2020 CAPITAL MARKETS ROADMAP FOR QATAR

COUNTRY COMPARISON: CAPITAL MARKET DEVELOPMENT

Emerging Markets MENA GCC

Malaysia Brazil South Africa Indonesia Turkey Egypt Saudi Arabia Qatar

Capital Overall and Islamic Capital Market Authority Markets Capital Markets Strategic Plan Masterplan

Foreign Varies up to 70% Varies up to 100% Varies up to 100% 49% 49%, no limit for foreign 49% Ownership strategic investors Limit

Source: Refinitiv Analysis

23 CAPITAL MARKETS ROADMAP FOR QATAR Qatar Capital Market Report 2020

CAPITAL MARKET REGULATORY COVERAGE

Equity TRKE QATAR SADI ARAIA SME Listing Bond/Sukuk Collective Investment Schemes/ Fund Management Derivatives ETFs REITs VC/PE M&A Private Pension Credit Rating SPVs/SPCs Sustainable/SRI Investment

RAIL EPT SOT MALASIA IDOESIA AFRICA

and listings of ETFs, REITs and In 2019, QFMA introduced a a dedicated investor relations SMEs on the Venture Market, as framework for investor relations section on their websites, hold well as mergers and acquisitions. practices (IR rules) based on quarterly investor conference Except for ETFs, activity is yet industry best practices that were calls, and submit an annual report to commence in these new included in the QSE Rulebook to QSE on their compliance with segments, indicating a requirement as mandatory requirements for the IR rules and requirements. for enhancing regulations and listed companies. Under these These updated rules are preparing incentive programs targeted at rules, companies must appoint an all Qatar-listed entities to field both issuers and investors. investor relations officer, launch concerns of international investors.

24 Qatar Capital Market Report 2020 CAPITAL MARKETS ROADMAP FOR QATAR

These efforts build on earlier investment decisions and as a sustainable finance platform, endeavours to introduce simplicity regulatory concerns for financial which restricts listings to issuers in investor communications. markets and institutions. and asset managers that provide In 2018, rules and procedures Moreover, global demand for full disclosure and fulfil their for omnibus orders changed, sustainable funding for the reporting obligations to ensure which allow custodians to group implementation of programs maximum transparency. These multiple investor accounts that related with the United Nations’ additional disclosure requirements are associated with one order into Sustainable Development Goals enhance issuers’ sustainable an omnibus account to facilitate (SDGs) presents the market profiles and leads to their higher placing direct (and efficient) with at least US$2-3 trillion in visibility on the LGX platform. The orders. Omnibus accounts are potential private-sector debt platform ensures a high level of typically used by futures managers and fund issuances annually. transparency for investors and to complete trades on behalf facilitates better comparability of the participating individual Despite this growth, sustainable between listed instruments. investors, which could signal investments remain a niche Listed securities must already be preparations for establishing segment in the GCC and MENA registered or listed on the main a derivates market in Qatar. regions, offering Qatar a prime Luxembourg Stock Exchange opportunity to establish itself to be displayed on LGX. By Q1 Areas requiring attention include as a destination for sustainable 2020, there were 621 bonds worth regulations for offering and investments, which would attract over US$230 billion. Thanks to listing securities and funds by both issuers and investors to its its dedicated green exchange foreign institutions, financial capital markets. The mandatory and capital market development intermediaries, and retail investor ESG reporting requirement efforts, LGX now hosts 50% of protection. As the primary for listed companies in Qatar green, social and sustainable regulator for these market serves as a stepping stone bond listings worldwide. activities, QFMA should also, towards this objective. jointly with QSE and QFCRA, Similarly, the Monetary Authority consider introducing incentives Countries such as Luxembourg, of Singapore (MAS) launched its for both issuers and investors in Malaysia and Singapore with Green Finance Action Plan in 2019, the form of fee waivers, relaxed mature capital markets have which outlines a long-term strategy regulatory requirements and tax introduced roadmaps to establish to establish sustainable finance as exemptions where feasible. This their markets as sustainable Singapore’s defining feature as an has proven an effective catalyst for investment hubs. In 2018, the international financial center. The issuance and investment activity in Luxembourg government launched plan will be implemented through both Malaysia and Saudi Arabia. the Luxembourg Sustainable six key initiatives, including the Finance Roadmap in partnership development of environmental risk Qatar as Sustainable with the UN Environment management guidelines for asset Investment Destination Program Finance Initiative (UNEP managers, establishing a US$2 Sustainable or ESG investment is FI). The roadmap establishes billion Green Investments Program burgeoning, with a market valued a comprehensive sustainable (GIP) and expanding the scope of at US$30.7 trillion in 2018 and finance strategy, leveraging external reviewers as well as rating expected to surge in years ahead. Luxembourg’s standing as an agencies. So far, the GIP fund has The demand for sustainable international financial centre. been set up to invest in public investment opportunities is market investment strategies that growing as investors’ preferences In 2016, the Luxembourg have a strong green focus. MAS are shifting towards more Stock Exchange launched the will place the funds with asset socially-responsible investment Luxembourg Green Exchange managers that have demonstrated solutions. Sustainability is also (LGX) — a dedicated platform commitment to deepen their becoming increasingly important for green, social and sustainable green investment capabilities as a criterion for government securities. The LGX serves as across their main functions.

25 CAPITAL MARKETS ROADMAP FOR QATAR Qatar Capital Market Report 2020

Meanwhile, SC Malaysia introduced to the Qatari market new equity listings as well as launched its Sustainable as an alternative and socially- fixed income issuances. and Responsible Investment responsible funding option for Roadmap (SRI Roadmap) in sustainable and environmental Boosting market capitalisation 2019. This launch follows the public and commercial projects. through government IPOs introduction of its SRI Sukuk Global IPO activity has slowed Framework in 2014 and SRI An overall concentration on in recent years, and uptake Funds guidelines in 2017. The socially-responsible investing from the private sector has five-year roadmap sets out would be less challenging to generally been low due to five overarching strategies: develop than may appear at easy access to lower-cost widening the range of SRI first glance. Islamic investments capital funding. To boost QSE’s investment, broadening the have much in common with market capitalisation and IPO SRI investor base, building socially conscious investments, activity, it is recommended a strong SRI issuer base, including those with an ESG for the government to follow a encouraging strong internal mandate, which has allowed double-pronged approach — governance and designing Islamic investment managers to launch IPOs or partial listings of information architecture for the tap a wider global investor base companies under its ownership SRI ecosystem. Since 2017, than conventional competitors. through a privatisation program 10 green SRI Sukuk worth Practices inherent in Islamic and simultaneously encourage a total of US$1 billion have finance provision have attracted the listing of SMEs. This been issued in Malaysia, in socially-responsible investors would be a catalyst for further addition to six SRI funds. outside Islamic jurisdictions trading activity and liquidity on seeking to diversify their QSE, making the market more Established financial centres geographical holdings. With attractive to investors. More are trying to stay ahead of the strong Shariah-compliant partial privatisations could be curve by capitalising on their players in Qatar’s funds market, on the horizon. In 2013, state- first-mover advantage in the it would be less challenging for owned Qatar Petroleum (QP) sustainable investment space the market to shift towards a announced IPO plans worth in their respective regions. For sustainable or ESG mandate US$13.7 billion over a 10-year Qatar, however, capital markets for mutual funds and ETFs. period. As of now, two QP still have ample potential for subsidiaries are listed on QSE development in terms of both — Mesaieed Petrochemical in depth and breadth. Without 2014 and QAMCO in 2018. the introduction of a separate PILLAR 2: DEVELOPING dedicated strategy focusing on A COMPREHENSIVE Malaysia’s privatisation drive of sustainable capital markets, AND DIVERSE state-owned enterprises during sustainable investment can INVESTMENT POOL the 1980s and early 1990s be incorporated as a niche helped to deepen its equity market that would generate a Deepening capital markets market. While this initiative competitive advantage in the The deepening of capital itself preceded their first Capital region, as part of an overall markets is essential for Markets Masterplan, it could capital markets masterplan. ensuring sustainable growth very well have been a central Regulators in Qatar should that will ultimately contribute pillar of it had it not been supplement the sustainable to economic growth in Qatar, already underway. Because investment strategy with which ought to be a key of newly privatised listings, regulatory frameworks based objective in the proposed Malaysia’s equity market on best practices, especially for capital markets development grew substantially as market sustainable/ ESG/ green bonds, plan. This can be achieved by capitalisation increased fivefold Sukuks and funds. In that vein, boosting primary market activity from RM 132 billion in 1990 SRI bonds and Sukuk could be or, increasing IPOs and other to RM 807 billion in 1996.

26 Qatar Capital Market Report 2020 CAPITAL MARKETS ROADMAP FOR QATAR

The deepening of capital markets is essential for ensuring sustainable growth that will ultimately contribute to economic growth in Qatar, which ought to be a key objective in the proposed capital markets development plan.

In Saudi Arabia’s Financial companies and SMEs. Family parallel exchange dedicated to Sector Development Plan, it businesses tend to shy away SMEs, were introduced in 2014. sets a target for total market from going public, wary of This step aimed to support capitalisation of at least 85% the dilution of their ownership SME development and lift their of GDP by 2020. To that end, interests. Nonetheless, the economic contribution in line the government has outlined mandatory conversion to with the QNV 2030, by offering a similar approach to listing Public Joint Stock Company small businesses access to state-owned entities and SMEs. (PJSC) structure for QSE-listed alternative fundraising channels In March 2020, the Saudi companies has proven to be to traditional bank financing. government approved listing the most successful model As regulatory requirements government assets planned across various international for publicly listed companies for privatisation via direct and markets. The QSE’s efforts to could pose a strain on SMEs’ indirect IPOs on the stock raise awareness of the benefits capabilities, the Venture market, despite the perceived of public listing for family-owned Market imposes lighter listing failure of the recent Aramco IPO. companies should be supported requirements for the size of listed with an incentive program to capital and their profitability Encourage the listing of family- make listings more attractive, track record, for example. To owned businesses and SMEs especially in terms of cost. garner more listing interest, The most challenging IPO it is recommended to reduce candidates in the corporate QFMA regulations for listing the frequency of disclosure sector are family-owned on QSE’s Venture Market, a reports to annual reporting.

27 CAPITAL MARKETS ROADMAP FOR QATAR Qatar Capital Market Report 2020

PARALLEL MARKET COMPARISON – UK, SAUDI ARABIA, QATAR

FTSE AIM Tadawul Nomu QE Venture Market

Minimum Market Cap. None SR 10 million QAR 2 million

Free Float 15% 20% or SAR 30 million, 10% whichever is less.

Advisory Requirements Nominated advisers and n Financial advisor – Listing Advisor approved by broker always must be mandatory QFMA. approved by the Exchange. n Legal advisor – optional n Nominated advisor ‘Authorised Persons’

Operational Years of None Minimum one year Minimum one year Listing operation Requirements

Company legal n Like UK plc structure Joint stock company1 n Joint-stock company form n If investment company, n Not applicable for foreign closed-ended fund, no issuer restricted investor base

Financials 3 years of audited financial n Annual audited financial Audited financial statements information (if available) statements for that year n Semi-annual* reviewed financial statements

Profitability Profit forecast, if appropriate None None

Other Sufficient working capital for None Min 75% of capital invested min 12 months in core business activities

Disclosure Quarterly On a voluntary basis Within 45 business days Within 30 days Requirements

Semi-annually Within 3 months None Within 45 days

Annually Within 6 months Within 90 business days Within 90 days

Ownership Listing Restrictions Open to non-UK companies n Majority Saudi/ GCC n Non-Qatari companies are owned eligible to list n Min 50 shareholders n Min 20 shareholders

Source: London Stock Exchange, Tadawul, Qatar Stock Exchange, Refinitiv Analysis

1 An existing private joint stock company wishing to transform to a public joint-stock company has a two-year track record and 10% profitability requirement. Other types of companies have a three-year track record and 10% profitability requirements.

28 Qatar Capital Market Report 2020 CAPITAL MARKETS ROADMAP FOR QATAR

Since its launch in 1995, London liquidity and the profile of London’s moved to further reducing Nomu’s Stock Exchange’s Alternative capital markets. Currently, there are listing requirements in 2019, Investment Market (AIM) has over 500 AIM companies with most making the IPO process optional emerged as one of the most of their operations outside the UK for listing and thereby reducing the successful growth markets in the in over 100 countries. This strong cost to companies. It also reduced world. Over 3,000 businesses international representation reflects the frequency of mandatory ranging from startups to the fact that AIM is a promising financial reporting from quarterly established companies have public market for growing and to semi-annually. It is expected joined AIM, raising more than entrepreneurial international that this decision will encourage £60 billion in new capital. Its businesses seeking to expand SME listings on the exchange. success is built on a simplified and enhance their global profile. regulatory environment which has Qatar’s Venture Market would do Private sector will determine been specifically designed for well to emulate AIM’s inclusive debt market’s long-term growth the needs of small and emerging and outward-focused model. The growth of Malaysia’s bond companies. There are certain tax market was initially driven by incentives available to individual In 2017, Tadawul — the Saudi government issuances to establish and corporate investors, which stock exchange — launched its the sovereign yield curve and further enhance the attractiveness parallel market Nomu. Although investor base necessary for of investing in AIM companies. the exchange has successfully development of the corporate attracted listings through lighter bond market. Subsequently, AIM has provided its international requirements, none have been as has happened in other constituents access to capital, SMEs. As a result, Tadawul had similar jurisdictions, an active

DANAJAMIN NASIONAL GUARANTEE SCHEME MODEL

Funding requirements Invests

Pays profit/coupon Returns ISSERS AAARATED IESTORS & principal SKKODS

Guarantees Sukuk/Bonds issued

AAA credit enhancement

Provision of Guarantee Facility for Sukuk/Bonds issuance

DAAAMI Payment of coupon/profit Payment of Guarantee Fee ASIOAL and principal on behalf of issuer ERAD should issuer fail to do so

Source: Danajamin Nasional Bhd

29 CAPITAL MARKETS ROADMAP FOR QATAR Qatar Capital Market Report 2020

... corporates continue to tap external markets for debt funding. This warrants a closer examination of the issuance process’s efficiency, [...] to eliminate bottlenecks along the process allowing corporates ease of access in tapping the local market on attractive terms.

corporate bond market began time to market for bond issues Since 2017, the Saudi government to facilitate issues by the private to fourteen working days. has embarked on a domestic sector to finance longer-term Lastly, the SC also introduced Sukuk program which has infrastructure and other public- a shelf-registration scheme, established a benchmark yield private partnership projects. which gave certain approved curve for domestic issuances, issuers even more control over with Sukuk issued in maturities In efforts to encourage corporates the timing of issuances. of up to 30 years. This has to raise debt financing through spurred significant activity capital markets, the Malaysian Malaysia had taken a step further, from corporate issuers, several government endeavoured to establishing Danajamin Nasional of which have come from streamline the issuance process Bhd in 2009, which provides a new issuers in the market. that extended up to 12 months. financial guarantee for bonds and Such long delays had put off Sukuk issued by less-established Driving these domestic issuances, corporate issuers from capital companies. The program facilitates both Malaysia and Saudi Arabia markets. In 2000, the SC issued access to the corporate bond have introduced incentives that Guidelines on the Offering of market, allowing firms to establish encouraged corporate Sukuk. Private Debt Securities, which a track record for credit-worthiness The Malaysian government reduced several requirements, while a review is undertaken to had offered a tax deduction on including underwriting assess the viability of establishing expenses incurred for issuing requirements, minimum credit facilities to mitigate illiquidity Sukuk based on structures other requirements, and restrictions on risks of bond funds. Danajamin than Murabaha, which were more the use of proceeds. It also shifted has total assets of RM2.7 billion in demand by foreign investors. to a post-vetting approval system, and total shareholders’ equity of Tax breaks on Wakala and Ijara under which “the issuer and the RM1.8 billion as at 31 December Sukuk were extended until 2018 to principal advisor needed only to 2018. It is backed by the attract further foreign investment file a declaration of compliance Malaysian government, hence its due to their popularity in GCC with the PDS Guidelines.” This ‘AAA’ rating by both RAM Rating markets. Consequently, Wakala reduced the approval bottleneck, Services Bhd (RAM) and Malaysia has become the second-most allowing the SC to reduce the Rating Corporation (MARC). issued Sukuk structure in Malaysia

30 Qatar Capital Market Report 2020 CAPITAL MARKETS ROADMAP FOR QATAR

SAUDI ARABIA SUKUK ISSUANCE 2016 – Q1 2020

Value Issued (US$ billion)

2016 2017 2018 2019 Q1 2020

Corporate 0.80 4.42 1.46 3.12 1.90

First-time Issuers

Riyad Bank - - - - 1.50

Almarai - - - 0.50 -

Arabian Centres - - - 0.50 -

STC - - - 1.25 -

Savola Group Company SJSC - - - 0.27 -

Maaden Phosphate Co - - 0.93 - -

Maalem Financing Company JSC - - 0.03 - -

Arabian Aramco Total Services Company JSC - 3.00 - - -

APICORP Sukuk Ltd - 0.50 - - -

Bank Albilad SJSC 0.53 - - - -

Dar Al-Arkan Sukuk Company Ltd - 0.50 0.50 0.60 0.40

National Commercial Bank SJSC - 0.35 - - -

Rvos Sukuk Ltd 0.00 - - - -

Sahara International Petrochemical Company SJSC 0.27 - - - -

Saudi Investment Bank SJSC - 0.08 - - -

Quasi Sovereign 3.05 2.58 5.84 4.11 2.43

Sovereign - 25.56 16.27 18.86 5.34

Grand Total 3.85 32.57 23.58 26.09 9.67

Source: Refinitiv

(16% of 2019 issuances), mainly minimum SAR 10,000, down market witnessed five debut driven by corporates. However, in from SAR 30,000, and capped issuances from Saudi corporates. the case of Qatar, where there is at SAR 50,000s. For subsequent no tax on issuances, this would issuances, annual listing fees The Qatari government remains not be directly applicable. dropped to a minimum SAR the most active issuer in the 5,000 from SAR 30,000 and domestic debt market, typically In 2019, Saudi Arabia introduced capped at SAR 25,000. Annual with maturities of 3, 5, 7 and 10 fee reductions to stimulate the registry fees and Sukuk and years, and it has announced its domestic corporate debt market. bonds trading commissions were intention to maintain a benchmark Annual listing fees for debut also reduced. Following this yield curve that would facilitate issuances were reduced to a decision, the domestic Sukuk better pricing of domestic

31 CAPITAL MARKETS ROADMAP FOR QATAR Qatar Capital Market Report 2020

32 Qatar Capital Market Report 2020 CAPITAL MARKETS ROADMAP FOR QATAR

corporate issuances. However, as illustrated earlier in this report, “As we look forward to the expansion of gas corporates continue to tap external production in Qatar by 2026, we anticipate this markets for debt funding. This will herald a new era of growth for the local asset warrants a closer examination of management industry focused on key sectors the issuance process’s efficiency, following the example of Malaysia of the economy in infrastructure, transportation to eliminate bottlenecks along and technology. QFC- and Qatar-based asset the process allowing corporates managers will play a critical part of contributing to the ease of access in tapping continued economic success witnessed in Doha over the local market on attractive the last 30 years.” terms. Incentives that result in cost savings have proven to be effective in stimulating market Fahmi Alghussein activity, so the introduction of CEO lower fees, especially for first-time Aventicum Capital Mgmt issuers, would help corporates seeking long-term funding.

Broadening capital markets The other side to developing well-diversified capital markets In Qatar, regulations are in place developed markets. The high lies in introducing new and for offering and listing investment returns generated by these funds alternative investment products funds and ETFs, so exposure could be replicated domestically, to the market, thereby catering to real assets can be offered to attracting demand form both to investors’ varying objectives investors seeking diversification domestic and foreign investors. and risk appetites. As mentioned of their portfolios and protection earlier in this roadmap, the QFMA against inflation. Investors could In 2016, the Saudi capital markets has already introduced several potentially gain exposure to mega regulator issued instructions regulatory frameworks for the infrastructure projects in Qatar for offering and listing REITs, offering and listing of products and other developing economies which was soon followed by the that have yet to be launched. This through infrastructure funds, which launch of the country’s first REIT would significantly shorten the generate their returns based on the (Riyad REIT). Today, there are process of their introduction. income from listed infrastructure 17 REITs listed on the Tadawul assets. These assets may include exchange, with a total market Creating an alternative airports, toll roads, oil and gas capitalisation of US$3.7 billion. In investment market pipelines, and utilities facilities, 2019, selected Saudi-based REITs The QSE began introducing offering governments an alternative were included in the FTSE EPRA/ alternative investment products source of project funding. Nareit Emerging Market Index, a in 2018 with the launch of Qatar’s benchmark index for emerging first two ETFs, and there are In addition to these infrastructure market REITs, which will enhance two more in the pipeline. REITs assets, Qatar’s substantial real the visibility of the Saudi REITs appear to be a strong contender assets in the aviation and shipping market to foreign investors, further for the next fund structure to be sectors create an opportunity broaden its investor base, and introduced on the QSE, backed for asset managers to introduce increase the level of disclosure. by listing regulations issued in domestic funds based on leasing 2015. Also, recently, QFCRA such assets. QInvest manages Commodity funds are another passed amendments to its CIS four such funds, investing in type of fund that can be rulebook to allow retail real Shariah-compliant leases or offered in Qatar, investing in estate funds, including REITs. Ijara contracts for assets in physical commodities such

33 CAPITAL MARKETS ROADMAP FOR QATAR Qatar Capital Market Report 2020

... there is an untapped market in the large expat workforce based in Qatar and neighboring countries that is not eligible for these public pensions. Private pension schemes present new growth opportunities for Qatar’s asset management industry.

as oil, natural gas and gold, source of institutional demand for It is estimated that the PRS as well as agricultural goods. domestic investment securities industry would reach RM30.9 Alternatively, these funds could in addition to public pension billion AuM by 2020. Setting invest in commodity indices or and insurance funds, especially up regulatory and operational commodity futures contracts. those with long maturities. frameworks for private pension funds, currently under active The pension fund industry In 2012, the Malaysian government consideration by QFCRA, would in the region remains small introduced the Private Retirement be imperative to the introduction as the countries are welfare Scheme (PRS) to ensure a robust of these funds to Qatar. states, operating government- and sustainable multi-pillar backed public pension funds pension system. PRS is a voluntary In February 2020, the Dubai for the benefit of their citizens. long-term savings and investment International Financial Centre Nonetheless, there is an untapped scheme that helps individuals (DIFC) introduced its Employee market in the large expat workforce supplement their state pensions Workplace Savings Plan (Dews), based in Qatar and neighbouring and retirement savings. A robust which aims to restructure the countries that is not eligible for PRS regulatory and supervisory current defined benefit end of these public pensions. Private framework was established under service gratuity scheme. The new pension schemes present new the Capital Markets and Services fund is a defined contribution growth opportunities for Qatar’s Act (CMSA) 2007 and enforced savings plan, funded by asset management industry. These by SC Malaysia, to ensure an contributions on behalf of expat funds would offer a new type of effective governance structure, employees of DIFC companies. investment vehicle that is suitable sound risk management practices, Employers will be required to make for retail investors, particularly and internal controls to safeguard monthly contributions of 5.83% or expats. It would also create a new the interests of contributors. 8.33% of an employee’s salary, per

34 Qatar Capital Market Report 2020 CAPITAL MARKETS ROADMAP FOR QATAR

their length of service. Employees from international investors and for derivatives exchange trading will also have the option to make establish this contract as a pricing in preparation for the launch of voluntary contributions from their benchmark for LNG — akin to the a derivatives market for the first salaries, adding an attractive ICE’s JKM LNG futures contracts. time in the Kingdom in January savings element to the pension 2020. Tadawul will launch an index plan that could exceed the level The establishment of derivatives futures contract based on MSCI of mandatory contributions by a markets has been part of the Tadawul 30 Index (MT30) over the wide margin. The fund is centrally capital market development plans course of the year, followed by administered by an investment in Malaysia and Saudi Arabia. the gradual launch of additional trust. Given the similarities Malaysia has been successful in derivative products as part of between Qatar and Dubai in terms the development of its derivatives its strategy to diversify its suite of workforce composition and market, which grew from RM 84 of products. This step followed the state pension framework, billion (US$11.4 billion) in 2000 to amending its Capital Market Law the Dews model could form RM 512 billion (US$121.2 billion) (CML) and the Securities Central the basis of closer study. in 2010 and is expected to reach Counterparties Regulations RM 4.2 trillion (US$994.1 billion) in aimed at regulating securities Establishing a derivatives market traded volume by 2020. Before the clearing activities in the country. Still a niche in the region, implementation of its first capital At the same time, the CMA establishing a derivatives market in market masterplan, Malaysia’s authorised Securities Clearing Qatar would add to the breadth of derivatives market was spread Center Company (Muqassa) capital markets, offering investors across three exchanges where to provide securities clearing risk management tools to hedge mostly palm oil futures contracts services as a designated Qualified their investments and business were traded. These exchanges Central Counterparty (QCCP). exposure. It would also create a were later consolidated as Bursa new source of business for local Derivatives exchange under Establishing a Private equity market makers and intermediaries. Bursa Malaysia. Bursa Derivatives and venture capital industry The QSE recently announced that positioned itself for rapid growth Aside from offering businesses it is looking into derivatives trading, through a strategic partnership access to capital funding through indicating that it could be hosted with the CME Group — the world’s traditional channels, capital on the exchange, supported by largest derivatives exchange — markets in Qatar have begun to a listing framework and clearing and migrating to CME’s Globex offer access to private sources of and settlement through the Qatar trading platform in 2010. investment for both the public and Central Securities Depository. The private sectors through a private offerings on this derivatives market This was followed by an initiative equity and venture capital market, would likely commence with index to broaden the derivatives including angel investments. futures, based on the three QSE product range to enable hedging However, given that Qatar is a indices. It is also recommended for and arbitraging activities across nascent market for this industry, it QSE to initially offer single-stock market segments. Simultaneously, is crucial to provide government futures in the market, which can the infrastructure for clearing, support and incentives to grow typically be easier to structure, cross-margining and settlement such a market, in addition to manage and promote to domestic was enhanced to improve developing frameworks that investors. Another product that operational efficiency. SC Malaysia ensure various legal structures warrants close consideration also collaborated with futures for investment pooling. would be an LNG futures contract, brokers, to expand offerings and building on Qatar’s position strengthen their capabilities and For reference, Malaysia as the world’s largest LNG operating standards to ultimately currently has 105 registered VC exporter. The careful execution expand customer reach. companies, which invested a of such a product, perhaps to be total of MYR613.3m (USD150.1m) subsequently introduced, could Meanwhile, the Saudi capital over the course of 2019. The attract considerable interest markets regulator issued rules government has set a priority for

35 CAPITAL MARKETS ROADMAP FOR QATAR Qatar Capital Market Report 2020

Qatar has an opportunity to open its capital markets to foreign issuers through regulatory partnerships to facilitate cross-border distribution of funds and equity and bond listings.

2020 to increase the number of PE back for Fintech companies in private network of 15 investors investments, with a government Qatar. These partners include that includes seasoned angel grant of RM 1 billion that offer eight funds: Romulus Fund, ERA investors, strategy consultants, a 1:5 matching guarantee for Fund Accelerator, Alchemist and C-level executives. DTA has these funds’ investments in local Accelerator, Iris Next Capital Fund invested in 10 companies, with businesses. The government is and SpeedInvest Fund through its 30% of the fund invested in Qatar, also looking to encourage new direct investment program to help while the remainder is invested alternative funding options for Qatari companies grow outside in foreign markets like the US, small businesses, including equity Qatar. The Fintech accelerator Singapore, Oman, and elsewhere. crowdfunding and P2P platforms, is expected to benefit from a which collectively raised RM US$100 million Fund-of-Funds, 430 million as of 2 June, 2019. previously established by QDB to Malay VC companies, including support companies, funds, and PILLAR 3: ATTRACTING angel investors, will continue partner funds in developing Qatar’s FOREIGN INVESTORS to receive tax benefits on their entrepreneurship ecosystem. Over AND INSTITUTIONS investments through 2023, US$60m from the fund of funds aimed at boosting VC funding for has been committed to more than Enhance QSE capabilities businesses and attracting more 30 Qatari startups and seven VC through Fintech foreign investors. The claimable firms since its inception in 2018. The incorporation of blockchain, tax deduction for each investor or distributed ledger technology, is capped at RM 20 million per Qatar has also encouraged angel within Qatar’s capital markets year over a five-year period. investing through QFC, which infrastructure would result in hosts Doha Tech Angels (DTA) more streamlined, efficient and In the local market, Qatar — Qatar’s first private angel fund cost-effective trading, clearing Development Bank (QDB) will be launched in 2018. It focuses and settlement processes on the launching its Fintech Accelerator on providing seed funding for QSE. However, to reap the full in 2020, in collaboration with early-stage technology startups benefit of this technology, market local and international partners, in Qatar and the rest of the participants would need to start with the aim of providing financial world. The fund comprises a investing in blockchain and work

36 Qatar Capital Market Report 2020 CAPITAL MARKETS ROADMAP FOR QATAR

with the QFMA, QSE and other The QSE has recently explored To support cross-listing and fund institutions to design blockchain cooperating with the US-based passporting arrangements, Qatar solutions specific to different Nasdaq stock exchange for the should also consider establishing asset classes. In addition, various dual listing of Qatari ETFs. Cross- a partnership between the Qatar market stakeholders would need listing equities and other securities Central Securities Depository to adapt their internal systems offers foreign issuers exposure and international clearing and to incorporate blockchain in their to a wider investor base, beyond settlement houses such as trading systems, as well as make the local market, and boosts a Euroclear, which is the largest in necessary changes to their post- security’s liquidity. Nevertheless, Europe. Using such partnerships trade activities and processes. there remains a downside to to help adopt international central multiple listings that could split securities depository settlement The rapid development of Fintech rather than increase liquidity models would significantly in Qatar is promising to enable the between markets, leaving issuers reduce operational inefficiencies QSE to facilitate retail investment with double the listing costs. and liquidity fragmentations in securities, in addition to the Furthermore, if the issuer selects that arise from listing securities introduction of lower investment a secondary market with tight and funds across multiple limits. Instimatch Global, a fintech regulations, they would run the jurisdictions. The use of a startup that recently established risk of additional costs resulting single clearing and settlements operations in QFC, is planning from potential non-compliance. model would streamline these to introduce a solution that processes as if conducted breaks down bond tranches to Dubai’s stock exchanges host in one central location. sizes that can be traded by retail cross-listings of several GCC- investors. Incorporating fintech based companies, in addition to In 2019, Hong Kong Exchanges solutions in the development of a recent cross-listing agreement and Clearing (HKEX) partnered the QSE’s trading infrastructure with the Egyptian stock exchange. with Euroclear in an arrangement would improve investor access to Several Bahrain- and Kuwait- that would help in listing European the market, as well as enhancing listed companies have attested ETFs in Hong Kong, as it sets the transparency and cost- to a boost in trading activity on it sights on an ETF hub in Asia efficiency of issuing and trading their stocks after their dual listing, and making the exchange more equity and debt securities. which expanded their liquidity relevant to global investors. pool. Saudi Arabia’s Tadawul has HKEX is the first exchange Cross-border agreements, also issued rules to facilitate GCC in Asia to adopt Euroclear’s partnerships, passporting cross-listings, partnering with international central securities cross-listing regional exchanges such as the depository settlement model. Qatar has an opportunity to open Abu Dhabi Securities Exchange. its capital markets to foreign Cross-listing ETFs on Asian issuers through regulatory Similarly, fund passporting exchanges had been quite partnerships to facilitate will allow the marketing and challenging when moving cross-border distribution of distribution of foreign investment underlying European shares to funds and equity and bond funds and vice versa. However, Asia is required as it can take listings. This includes mutual the implementation of a regional longer than typical settlement recognition frameworks for passporting regime has so periods. Such inefficiencies had cross-border offerings, listings, far proven successful mainly kept some firms from issuing and professionals; the formation in the European Economic ETFs in Hong Kong. The model of exchange alliances; and the Area. This warrants carefully allows trades to be settled in one development of a conducive selecting markets governed by central location rather than in regulatory framework and similar regulatory frameworks various depositories in different infrastructure to facilitate cross- and governance structures as markets — a significant move border transactions among Qatar’s partners in any fund for ETFs, including shares listed international capital markets. passporting agreements. on different stock exchanges.

37 NOTES QUICK EASY SET U QATAR CAPITAL MARKET REPORT 2020

BUILDING A STRONG LOCAL MARKET