Central Bank of Bahrain Regulations: Disclosure Standards

A new feature here at Suq al Mal.  We'll look at various CBB Regulations and see how the banking community is implementing them.

Back in October 2007, the CBB issued "Disclosure Standards" - a comprehensive and well thought out set of regulations which set forth requirements for listed companies and for the offering of securities in the Kingdom of Bahrain.  The full text of the regulations is here.

The particular text I'd like to focus on today is the following:

42.1 Immediate disclosure should be made of any information regarding an issuer's affairs, or about events or conditions in the market that will affect the issuer's securities, which meets either of the following standards:

Where the information is likely to have a significant effect on the price of any of the issuer's securities.

Where such information (after any necessary interpretation by securities analysts or other experts) is likely to be considered important, by a reasonable investor, in determining his choice of action.

Now, it would seem to me as a casual observer that if a firm were listed on the Bahrain Stock Exchange and it was say downgraded to below investment grade or perhaps even to Selective Default a reasonable person would expect that such a development would have a "significant effect" on the price of the issuer's securities.  And as an investor, AA would certainly like to have such information in "determining my choice of action".  That is, if a company's debt were considered highly risky, and given that debt has priority of repayment over equity, then it would seem that the equity was even more risky.  And riskier equity should have a higher return and therefore sell cheaper.

One might argue that the best course of action was a formal announcement on the Bahrain Stock Exchange where all might see it.  Second best would of course be posting such information on its website, though that approach assumes that investors will search for information.

With that as background, what are we to make of the following facts:

1. GFH has not published any such announcement at the BSE except in response to a BSE request as happened today.  And you will note that the BSE has been actively pursuing GFH for additional information on a regular and timely basis.
2. GFH has apparently not yet had the opportunity to update the ratings information on its website, though to be fair only a scant 80 days has passed since it was downgraded to BB+.  Currently, the rating is SD.