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Thursday, April 25, 2024 1:49 GMT
A strategic document envisioned for broadening Qatar’s capital market has listed out a wide range of recommendations, including developing a derivatives market in Qatar.The “Capital Market Report 2020”, unveiled by Qatar Financial Centre (QFC), with the support of Refinitiv here yesterday emphasised that Qatar’s capital markets should identify specific initiatives to encourage more primary market issuances, facilitate liquidity in secondary markets, establish a wider investment pool, and promote foreign investment through the development of the appropriate regulatory frameworks.Establishing a derivatives market in Qatar would add to the breadth of capital markets, offering investors risk management tools to hedge their investments and business exposure.It would also create a new source of business for local market makers and intermediaries, the report said. It also recommended QSE to initially offer single-stock futures in the market, which can typically be easier to structure, manage and promote to domestic investors. Another product that warrants close consideration would be an LNG futures contract, building on Qatar’s position as the world’s largest LNG exporter.The careful execution of such a product could attract considerable interest from international investors and establish this contract as a pricing benchmark for LNG — akin to the ICE’s JKM LNG futures contracts.The report recaled that the establishment of derivatives markets has been part of the capital market development plans in Malaysia. Citing Malaysian success story, it noted the development of its derivatives market, which grew from RM 84 billion (US$11.4 billion) in 2000 to RM 512 billion (US$121.2 billion) in 2010 and is expected to reach RM 4.2 trillion (US$994.1 billion) in traded volume by 2020.Before the implementation of its first capital market masterplan, Malaysia’s derivatives market was spread across three exchanges where mostly palm oil futures contracts were traded.These exchanges were later consolidated as Bursa Derivatives exchange under Bursa Malaysia. Bursa Derivatives positioned itself for rapid growth through a strategic partnership with the CME Group — the world’s largest derivatives exchange — and migrating to CME’s Globex trading platform in 2010.Participating in a webinar, which coincided with the launch of the report, market experts said Qatar-based corporates are yet to be persuaded to tap the local bond markets in favor of more accessible and cheaper bank financing. These corporates may be lured by relaxing capital issuance regulations and more targeted awareness efforts as to the benefits of issuing bonds compared to bank financing as a viable and attractive alternative.Large corporates in the energy, transport and logistics sectors make ideal candidates for issuing bonds and Sukuk since they require substantial financing for working capital over a long-term horizon. Issuing debt instruments will help diversify the company’s funding base, and it is also a less restrictive compared to bank financing as the debtors have no say over the running of the business – granting them significantly greater freedom of operations.The experts noted bond and Sukuk issuance in Qatar totaled US$28 billion in 2019, representing a CAGR of 28% since 2015. Growth in 2019 was largely driven by conventional bonds. El Sadiq Al Fatih Hamour, Director of Financial Institutions, QFC; Jinan Al Taitoon, Senior Research Analyst, Islamic Finance, Refinitiv; Thaddeus Charles Malesa (QFC); Jiazhong Wang (QFC); Andrew Wingfield of Simmons & Simmons, Middle East; and Fami Alghussein, CEO, Aventicum Capital Management shared their thoughts on the findings of QFC report.