Bank of London and the Middle East (BLME), Europes largest Islamic bank, is planning to list on Nasdaq Dubai.
It intends to list a total of $503m-worth of existing shares in October at an expected price of $2.57 a share. That represents 5-15 per cent of its share capital, which is mainly held by Kuwait-based investors, including Boubyan Bank.
The lender, which opened a Dubai representative office in May and primarily caters to UK-based clients, is hoping to tap into Dubai Ruler Sheikh Mohammed bin Rashid al-Maktoums plans to make Dubai the economic capital of Islamic finance. In addition, there is growing international demand for sukuk (Islamic bonds), according to Humphrey Percy, chief executive officer (CEO) of BLME.
We have a lot of interaction with this region simply because most of the sukuk issuance is from here, says Percy.
There is a requirement in the market place because banks need to hold stock of prime, liquid assets, which still hasnt been addressed in the sukuk market. That gap will start being filled as issuers feel more confident and sukuk will not have to be issued at a premium rate, but at a fairer rate. The market has become much more mature.
Issuing sukuk is becoming an increasingly popular method for regional companies to raise capital. In the first quarter of 2013, issuers including Dubai Electricity & Water Authority (Dewa), Emirates airline and Dubai Islamic Bank each issued sukuk worth $1bn.
BLMEs planned listing marks the first for Nasdaq Dubai in five years. While that raises hopes of attracting more liquidity to the exchange, which has seen its trading volumes decline in recent years, it remains to be seen how actively the stocks will be traded.
With only seven listed stocks most of them illiquid, apart from port operator DP World and local interiors company Depa the Dubai exchange struggles with liquidity and has been forced to look at other ways to complement its share trading business.
In February, Nasdaq Dubai announced it might look to target smaller companies for the creation of a new market dedicated to small and medium-sized enterprises (SMEs). And earlier this year, the exchange introduced the trading of bonds and sukuk, initially offering $10.9bn-worth of securities. However, competition from the over-the-counter market, where they also trade, causes issues with attracting liquidity.