x Abu Dhabi, UAEFriday 19 January 2018

ADIB to look at foreign ownership

Abu Dhabi Islamic Bank considers lifting its ban on foreign ownership and sends its shares to their highest close in more than two months.

Abu Dhabi Islamic Bank is expected to report its fourth-quarter results next week.
Abu Dhabi Islamic Bank is expected to report its fourth-quarter results next week.

Abu Dhabi Islamic Bank (ADIB) has become one of the last local lenders to consider lifting its ban on foreign ownership, sending its shares to their highest close in more than two months. The country's second-biggest Islamic lender yesterday said it would discuss at a board meeting on Sunday allowing non-UAE nationals to own 25 per cent of the bank's stock.

ADIB shares ended the day 4.2 per cent higher at Dh2.99. Four of the country's 20 listed banks do not allow foreigners to own their stock. The others are Mashreqbank and two local banks, National Bank of Umm al Qaiwain and National Bank of Fujairah. Restrictions on business ownership have been blamed for holding back foreign investment in the UAE. Federal law requires foreigners to have an Emirati as a sponsor and limits them to a maximum of 49 per cent ownership of businesses. The exceptions are free zones, where foreign companies can have 100 per cent ownership.

Foreign ownership restrictions have also affected the performance of local stocks, and are a reason local markets have not been given "emerging market status" by index providers such as MSCI Barra. "I see this as a move that shows that ADIB wants to expand its shareholder base, especially to institutional investors who may see value in an Islamic Bank," said Deepak Tolani, an analyst at Al Mal Capital.

United Arab Bank, based in Sharjah, and Ajman Bank are the two UAE banks allowing 49 per cent foreign ownership. As it stands, the banks are 45.12 and 13 per cent owned by foreign interests, respectively. By contrast, foreigners can only own 5 per cent of Emirates NBD, the country's biggest lender. At present, foreigners hold 3.6 per cent. Most UAE banks limit ownership to between 15 and 25 per cent.

Concluding a major review in June, MSCI said foreign ownership limit levels by Emirati companies remained "a potential concern" for international institutional investors. "While not an impediment per se for a potential reclassification, MSCI encourages the Emirati regulator to find ways to further facilitate equal foreign access to the local equity market," MSCI said. Under the proposed new Companies Law, international firms in certain sectors would be allowed to own greater stakes. But the law needs to be approved by the Federal National Council.

The new legislation is part of the Government's drive to encourage foreign investment and expand the value of the non-oil sector into areas such as industry. A separate proposed law to provide legal protection for overseas investors is also in the pipeline. ADIB and Emirates NBD are the only UAE banks that have not yet reported their final earnings for last year. Both are expected to publish their fourth-quarter figures next week.