x Abu Dhabi, UAEMonday 24 July 2017

Companies law in UAE offers promising year for IPOs

Essa Kazim, who is also governor of the Dubai International Financial Centre Authority, said that the existing legislation had dissuaded some companies from listing.

The change to the companies law will be a major breakthrough in driving the IPO market, said Karim Awad, co-chief executive of EFG-Hermes. Jaime Puebla / The National
The change to the companies law will be a major breakthrough in driving the IPO market, said Karim Awad, co-chief executive of EFG-Hermes. Jaime Puebla / The National

More businesses will list on financial markets once new rules come into force reducing the size of the stake that companies are obliged to offer, says the chairman of the Dubai Financial Market (DFM).

“This year could be a really good year for IPOs,” Essa Kazim said at a conference in Dubai yesterday. “The new companies law will be a milestone for the IPO market and that should be approved very soon.”

Mr Kazim, who is also governor of the Dubai International Financial Centre Authority, said that the existing legislation had dissuaded some companies from listing.

Under the new companies law, he said, the percentage of ownership that must be sold in an IPO will be cut to 30 per cent from 55 per cent.

New listings have so far failed to materialise in the UAE despite the country’s markets rallying at or near the fastest pace in the world in the past year. The DFM General Index is up 126.8 per cent in the past year, with the Abu Dhabi Securities Exchange Index rising 69.7 per cent.

Marka, a new retail company, announced plans last month to launch a Dh500m IPO on the DFM.

For other companies, London has emerged as a more attractive place to list. Abu Dhabi-based Gulf Marine Services (GMS) said on last month that it planned to sell shares on the London Stock Exchange to feed its expansion. The Dubai developer Damac listed in London in December; its stock has since surged by 31 per cent, as of yesterday afternoon.

“The change to the companies law will be a major breakthrough in driving the IPO market,” said Karim Awad, co-chief executive of EFG-Hermes, the Egyptian bank, which hosted yesterday’s conference. “This was a deterrent for companies going public in the UAE – one of the main drivers behind companies like GMS taking their IPO to London.”

The most recent listing on the DFM was the contractor Drake & Scull, which began trading in March 2009. The ADX has hosted only a couple of small sales in recent years.

Other barriers have also been citied as impediments to local listings. Shares listed on the Dubai bourse have to be priced at a par value of Dh1 a share, giving owners less flexibility in structuring sales. Another issue is the lack of institutional investors, generally considered a “stickier” form of investment than that offered by retail investors.

“Still, the market is dominated by retail investors,” Mr Kazim said, “although we have been working to diversify the sources of liquidity coming to the market.”

More institutional investors may be enticed to local markets in May when the UAE is upgraded to emerging market status by the index provider MSCI. MSCI’s emerging index is tracked by some US$1.4 trillion in flows.

tarnold@thenational.ae

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