Foreign ownership issues remain issue for investors in Gulf

12 February 2014

New report highlights key investor concerns over foreign ownership limits in the Gulf

Limits on foreign ownership of companies in the Gulf continue to be a concern for investors looking at the region.

Speaking to MEED, Peter Gotke, managing director, depositary receipts, UK & Ireland and Middle East at US’ BNY Mellon, says these limits are putting off some investors from buying shares in Middle Eastern companies.

“One thing that transcends the region is the foreign ownership issue,” he says. “Many institutions are nervous of buying companies that have a relatively low liquidity, low free float and low foreign ownership. Maybe we can buy the stock, but can we sell it? Is there enough appetite?”

His comments follow the release of the annual investor relations (IR) survey conducted by the bank in which IR offices of Middle East companies have cited the “uncertain regulatory environment”, such as foreign ownership issues, as their main worry. Gotke adds that attitudes towards these restrictions are changing.

“You are seeing a slight shift, perhaps in reaction to the forthcoming MSCI upgrade, you are seeing some flexibility from governments around the different limits,” he says. The UAE and Qatar are to be upgraded from frontier to emerging market status by the index compiler MSCI in May.

Gotke cites Qatar as an example where technically there is a 25 per cent limit on foreign ownership, but there are companies operating outside those boundaries.

In Dubai, some companies have increased their limits. Dubai Islamic Bank announced in December it will increase foreign ownership limits from 15 to 25 per cent.

The BNY Mellon report also found that more than half of the Middle Eastern companies surveyed said expanding their shareholder base internationally was a key priority.

“Companies globally are ramping up their investor relations activities because everyone is much keener to get on the road and broadcast their story,” Gotke says. “It is good to see the Middle East issuers have the same goal of increasing international ownership, and also a relief that there is a goal to diversify the type of investor. As investors switch back into emerging markets, the region should target more long-term investors.”

He adds that there could be more Middle East companies looking to issue global depositary receipt (GDR) offerings following the Dubai-based developer Damac Properties $400m listing on the London Stock Exchange (LSE) last December.

“Damac has been a pretty good case study and other companies from other sectors will look to London,” he says.

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