Growth remains sluggish on region's bourses

01 July 2010

Financial crisis has hampered liquidity and trading volumes

The region’s stock markets were dealt a series of blows in late June as two hotly anticipated listings were postponed and a prominent government-owned company announced it plans to delist from the Abu Dhabi Securities Exchange (ADX). 

Palestine’s Wataniya Mobile, set to be the largest IPO of 2010, announced it has been delayed until September, while what was set to be the UAE’s first listing of the year has been indefinitely delayed and may even be cancelled altogether.

The mobile operator, which has a paid-up capital of $817m, was planning to offer a 30 per cent stake on the Palestine Stock Exchange (PSE) in early July.

The listing of an unidentified Abu Dhabi-based company was scheduled to launch on the ADX in early June and raise over $272m.

Sentiment towards the region’s stock markets has been further undermined by Dubai corporate champion DP World’s announcement on 28 June that it has had to delay its plans for a secondary listing on the London Stock Exchange until 2011, while it waits for the merger of Dubai’s two exchanges to be completed.

The Dubai Financial Market (DFM) announced a $121m take-over offer of international exchange Nasdaq Dubai in December 2009, but no clear timeline is in place.

In January this year, DP World had said it hoped to list on the LSE in the second quarter of this year in order to address its continued disappointment with its market valuation, which has been depressed by the low trading volumes on the Nasdaq Dubai.

But while these delayed listings have served as symbolic blows, the announcement on 24 June by Aabar Investments that it is seeking approval from its shareholders to delist from the ADX carries more serious implications.

Aabar, which is 70 per cent owned by the Abu Dhabi government’s International Petroleum Investment Company (Ipic), said it considered the move “an essential step in the life of the company.”

Its decision is part of a growing trend in emerging economies away from the traditional public limited company. Aside from the regulatory burden of publicly listing, companies today are increasingly favouring private equity firms and hedge funds as a more efficient and certain means of raising cash.

Furthermore, the lack of liquidity on key regional exchanges does not look set to increase any time soon.

On 22 June, global index provider MSCI said that “major concerns” prevented it from upgrading both Qatar and the UAE to emerging market status in its annual classification, ending hopes of an influx of foreign capital.

Some analysts believe that an upgrade to the more stable emerging market status from their current frontier classification could attract $5bn in new capital into the UAE alone.

The fact that institutional investors often have to establish dual accounts for trading and holding shares was cited as one of the main reasons for the failure to be upgraded, as were the stringent foreign ownership limits imposed in both GCC markets.

There is no doubt that the global financial crisis has dampened the speed of progress in the capital markets and adversely affected their overall liquidity and trading volumes.

Hopefully the downturn has also prompted a broader rethink on the structure and development of the markets, and what needs to be done to ensure they play a greater role in the future growth of the public sector.

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