Brunei's financial regulator plans to launch a securities exchange as early as 2017, a must-have if the Sultanate is to diversify its economy away from oil and catch up to more mature capital markets in Southeast Asia.
Brunei is among the world's richest countries on a per-capita basis, although it sits alongside the likes of North Korea and Cuba in not having a stock exchange, risking lagging behind regional economic integration plans.
An exchange has been discussed for years, but efforts are gathering pace with new capital market rules introduced in February and other initiatives now underway by the Autoriti Monetari Brunei Darussalam (AMBD).
The regulator has set up a team to oversee the project with groundwork set to begin this year and targeting a launch in two-years time, the AMBD said in a statement to Reuters.
"At a regional level, it will allow us to take part in the ASEAN exchanges and move towards ASEAN integration."
This would boost the domestic financial sector, provide an alternative funding source for small businesses and improve the country's corporate governance, the AMBD said.
Initial focus would be on listing equities, adding bonds and sukuk (Islamic bonds) at a later stage.
Brunei, a tiny former British protectorate of about 400,000 nestled between two Malaysian states on Borneo island, relies on oil and gas exports for two thirds of its economy.
But GDP is expected to shrink by 1.5 percent in 2015, the third year of consecutive contraction, according to the Asian Development Bank, mainly due to daily oil output falling by almost half since 2006 and a drop in global crude prices.
CANDIDATES FOR LISTING
With oil reserves set to run out in about 20 years, the government wants to develop sectors such as tourism, halal products and manufacturing.
The AMBD is implementing a payment and settlement system, including an automated clearinghouse by mid-2015, although a deep and liquid market could be several years away.
"Initial success would be slow, for a full-blown capital market it will be a longer journey," said Javed Ahmad, managing director at Bank Islam Brunei Darussalam (BIBD), the country's largest lender.
About a dozen firms could be candidates to list, including utility Telekom Brunei, downstream oil and gas service firms and financial institutions including BIBD itself, said Ahmad.
"Its only natural as we would want our 6,000 shareholders to have a medium to trade."
Greenfield firms would be less likely, while family-owned firms would have to improve their financial reporting to explore a listing, he added.
Scope for a bond market could also be restricted due to the ample liquidity from bank loans and the limited size of private-sector borrowers, said Amit Pandey, primary credit analyst at Standard and Poor's, who noted some large projects in the oil & gas sector had been financed by offshore bank syndication.
