I have been searching for a solution to this paradox for some time: The UAE wants to maintain its lead position as the financial centre of the Arabian Gulf region, and one of the requirements for such a place is a strong equities market in the country.
Yet, for all the encouragement that policymakers provide to local companies to list on UAE exchanges, some still prefer to go overseas for listings, especially to London.
In little over a year, two companies, both in the healthcare sector, have opted for listings on the London Stock Exchange, rather than the local markets. Al Noor Hospitals gained a US$1 billion listing in June, following the example set by NMC last year.
Both have had successful initial public offerings and good after-market trading in sometimes difficult conditions for equities, it must be stressed. But what decided their initial choice of London?
Before you get to an answer to that question, some myths should be dispelled. One of the often-stated reasons for corporates' preference for London rather than the UAE is the supposedly disjointed nature of markets in the Emirates.
But, on closer examination, this does not really seem to be the reason for the preference for London. Those markets are in the process of being consolidated anyway, and in the age of electronic share dealing, it does not really matter that there are three platforms. What matters is liquidity.
But nor does the quest for liquidity adequately explain why some UAE companies have opted for London. Liquidity is a function of supply and demand, and availability of equity to be traded. Again, in the era of "dark pools" of liquidity operating on a global level, it should make little difference where shares are physically listed. As long as there is demand and availability, there will be liquidity.
Another myth was recently dispelled for good. The UAE's promotion to emerging market status by MSCI removed the objections of some international investors that were prevented by their own rules from investing in more risky "frontier" markets.
So why do some UAE companies still prefer London to the UAE? For the past couple of weeks I've been posing that question to every London-based investment banker I have met (and there have been many) and there seems to be a unanimity of response - the rules in London are regarded as more beneficial for private company investors, especially those seeking to raise money from the IPO.
This is obvious in three main areas. First, the London requirement for an IPO is that only 25 per cent of the company's shares have to be publicly tradable, as opposed to more than 50 per cent on ADX and DFM
This is ironic, as the UAE rule seems designed to promote greater liquidity, but it appears that founder-investors are reluctant to hand over majority control when they go public.
The second reason is related. Under the rules of the Securities and Commodities Authority in the UAE, any new money raised in an IPO must go to the company, rather than the investors. This again acts as a deterrent to founder-shareholders who, quite justifiably, might want to realise some profit from their hard work in setting up a company and making it successful.
Third, there is the fact that on the London market, the price of the listing is determined by the market, usually in a book-building exercise that attempts to match demand for the shares with the number of shares to be issued.
In the UAE, the SCA effectively tells the issuer what the price should be. Again, this is regarded as a negative by most would-be issuers (at least outside Nasdaq Dubai, where book-building is permitted).
So the arguments in favour of London really boil down to some structural differences, which could easily be rectified in UAE company law and regulatory practice.
If the Emirates' markets wish to halt the flow of IPOs to London, they should look to these adjustments to the system.