x Abu Dhabi, UAEFriday 28 July 2017

IPOs need market liquidity to float

The nation¿s bourses have come a long way in the last decade, but keeping this tap flowing will require a significant investment of capital, resources and an endless reservoir of ingenuity.

Is liquidity returning to the frozen taps of the country's markets? Judging from the slow trickle of announced public offerings, some think so.

As The National reported yesterday, the Abu Dhabi-based Insurance House, a spin-off of Finance House company, wants to raise US$16 million (Dh58.7 million) from the public starting on February 27. It would be the first public offering in the UAE in over two years.

It would be overly optimistic to suggest this relatively small IPO signals a reversal of market fortunes. There are no guarantees Finance House will float successfully; Axiom Telecom, the only other announced share sale in recent months, was cancelled due to lack of investor interest.

Yet it is positive that firms are again testing the waters. The Abu Dhabi developer Eshraq is reportedly pondering a plunge, as is Abu Dhabi National Insurance Company. Officials say that other UAE-based companies are likely to follow suit in the next few quarters.

As Rashed al Baloushi, the deputy chief executive of the Abu Dhabi Securities Exchange (ADX), told The National, investors are coming around to see "opportunities left and right". But keeping investors upbeat will take more than rosy predictions. For long-term liquidity, the country must move towards implementation of broad market reforms, some of which are overdue.

Stock exchange mergers are taking place across the world to lower costs and streamline trading - yesterday, the NYSE and Deutsche Bourse announced the terms of one deal. Closer to home, talks have focused on merging the ADX and the Dubai Financial Market; these discussions should continue. In the meantime, streamlining regulatory frameworks and trading platforms would increase investor confidence, and lure more dollars to regional companies.

Beyond the nuts and bolts of the country's markets is the need for broader, more ideological shifts in public financing. Family businesses should be encouraged to go public and regulators should consider expanding the base of eligible investors. The Insurance House offering, for instance, is limited exclusively to Emirati citizens.

The nation's bourses have come a long way in the last decade, when buying and selling shares was more akin to haggling in a souq than navigating Wall Street. Keeping this tap flowing will require a significant investment of capital, resources and an endless reservoir of ingenuity.