Recently Kuensel reported that there is dearth of investment avenues in Bhutan. Further, another article says that five of the 21 listed companies on the Royal Securities Exchange of Bhutan (RSEB), face threat of delisting.
Initial Public Offering or IPO to raise capital from public investors is also very rare in Bhutan. This has led to overvaluation of market price of shares of existing companies listed on RSEB. In other countries, market price of shares in the capital market is mainly driven by performance of the company. On the contrary, market price in Bhutan changes according to the availability of shares available for sell. These are not good developments as far as capital market or investment opportunity is concerned.
If public interest and public knowledge about investment is analysed, there is enough evidence to prove that the general public are all for investment. In the last decade, Bhutan saw big boom in the real estate investment. People with savings have invested heavily into buying land, building and apartments, mostly with the hope to sell at higher prices in the future.
The boom in the real estate sector has skyrocketed the prices of land and buildings especially in urban places. Similarly, there was substantial growth rate of investment in the capital market. When Dungsam Polymers Limited (DPL) offered their shares through IPO in 2013, it was oversubscribed by 244% according to a report by the Royal Monetary Authority of Bhutan (RMA). The same was the case when Druk Punjab National Bank (DPNB) offered their IPO. Likewise, during the auctioning of unsubscribed rights shares of DPNB and Royal Insurance Corporation of Bhutan (RICB), the general public quoted prices way above the face value of shares. People were willing to buy Nu 10 shares of RICB at Nu 70 per share. The question of whether people analyzed the past performance and future business prospects of either DPNB or RICB before quoting their price during the auction remains unanswered. What is certain, however, is that there is limited avenue for an average person to invest in Bhutan.
Creation of investment opportunity is not the sole responsibility of any particular agency. There is a need for all stakeholders to play their respective parts to create investment opportunities for the general public and to help grow our economy.
In this article, an attempt has been made to explore what more can the key stakeholders do to help build a conducive environment for investment.
1. Royal Government of Bhutan (RGoB)
In the Kuensel issue of March 19, 2019, it was reported that according to a World Bank report, the state’s dominance of the economy has constrained private sector development, leading to market distortion and lack of competition in Bhutan. There is therefore an urgent need for the government as well as government’s investment arm Druk Holding & Investments (DHI) to privatize certain non-strategic companies in order to boost trade in the capital market.
From sectors where the private players are already doing well like manufacturing, financial, construction, food & beverage, banking, IT etc. the government and DHI should gradually exit and transfer the ownership to the general public through IPO. The government can decide to either divest the entire shareholding or just portion of total shares as per the strategic nature of the company.
In an article by former prime minister Dasho Tshering Tobgay, he emphasizes that the government should not transfer ownership of national assets to a few already well-off individuals. Divestment should therefore be done absolutely through IPO. The modality adopted at the time of floating shares for DPNB is perhaps a good model as the shares were equally distributed in accordance to the number of subscribers and not on the basis of the amount invested by individuals.
2. Royal Monetary Authority of Bhutan (RMA)
The works carried out by RMA in the fields of Crowdfunding, Jab-Chor, Micro Financial Institutions, Priority Sector Lending are truly commendable. RMA can hereon explore options for the public to invest in stock market of neighboring countries. RMA can also work towards establishing more Fund Management companies which will become a necessity if investment in foreign stock market is permitted.
According to one report, the total unclaimed dividends from various listed companies has reached Nu 17 Million in 2018. RMA can help in developing favorable policies together with RSEB to channel unclaimed dividends to its rightful owners.
3. Royal Securities Exchange of Bhutan (RSEB)
Despite being one of the smallest stock exchanges in the world with just over 20 listed companies, RSEB has so far lived up to the expectation of the investors. RSEB may want to further add important documents like Annual Reports of listed companies on their website.
RSEB can play vital role in creating more investment opportunities in Bhutan. One avenue RSEB must explore is the capitalization of the art market of Bhutan. The Indian art market was valued at Rs 14.6 Billion in 2017. The art market is defined as “hybrid type of prediction market where art is bought and sold for values based not only on a work’s perceived cultural value, but on both its past monetary value as well as its predicted future value”. In collaboration with Art Galleries, there is scope for RSEB to take Bhutanese art on the global stage. In fact, many leading business institutions in India advice interested individuals to invest in art market. The art market is considered volatile but yet the growth rate can be massive as compared to other investment avenues.
There is opportunity for RSEB to work with RMA and the government to enforce good Corporate Governance in all listed companies. RSEB has to take the lead in the establishment of company Board in companies with large number of shareholders. RSEB should support the shareholders through stringent policies and rules to avoid cases of mismanagement and weak enforcement of corporate governance to gain confidence of investors.
4. Financial Institutions
With the entry of DPNB, Tashi Bank and Bhutan Insurance Limited, competition is at its peak in the Bhutanese financial sector. Few years ago, who would have thought that BoB would one day introduce revolutionary mobile system such as mBoB? Healthy competition in any sector is good and now the time has come for financial institutions to diversify their products to meet the needs of customers and to enhance investment opportunities in Bhutan.
Besides the conventional products like Fixed Deposit Accounts and Saving Accounts, financial institutions should offer other products such as Certificate of Deposits (CoD) and High Yield Bank Accounts which will encourage the public to invest in the money market.
A particular product worth exploring for financial institutions in Bhutan is Reverse Mortgage. This product has gained popularity in many countries. Under reverse mortgage, a homeowner above the age of 60 can borrow money against the value of their home and receive funds as lumpsum or fixed monthly payment. The homeowner doesn’t require making any loan payments. The loan balance becomes due and payable only when the borrower dies. At the time of death, the bank sells off the property, keeps the money due to them and hands over the remaining amount to nominee of the borrower. This scheme is particularly attractive for those people without family support and who requires constant income after retirement.
Lastly, on the part of the general public, there is need for us to inculcate the habit of saving in ourselves and in our children. Many foreigners living and working in Bhutan have observed that our saving culture is very poor. While we expect the above stakeholders to create investment avenues, on our own part, we need to save in order to make investment.
Contributed by Pempa Tshering