Gulf companies are expressing a growing interest in listing on the London stock exchanges as a means of tapping liquidity, while the region’s bourses continue to be weighed down by low trading volumes.
“Gulf companies are increasingly looking to list on the London Stock Exchange (LSE) or the Alternative Investment Market (AIM),” says Salmaan Khawaja, associate director at financial advisory firm Grant Thornton.
“In particular, the UAE, Jordan, Bahrain and Saudi Arabian markets are expressing a keen interest. The lack of liquidity in local markets means it doesn’t make sense for companies to list here – they might as well stay a private company.”
Khawaja says queries for advisory work are coming from a broad range of sectors, including technology, business support services such as facilities management and logistics.
The collective turnover of the 13 official Arab stock exchanges plunged to a five-year low of $567.8bn during 2009 from nearly $891.9bn during 2008, according to the Abu Dhabi-based Arab Monetary Fund’s (AMF) joint Arab stock database.
By contrast, Khawaja says the LSE and the AIM market, the latter catering to growth companies, are attractive platforms for companies looking to raise capital or attract institutional investment.
“The London exchanges offer a high quality investor base, a relatively flexible regulatory regime, as well as added benefits of having an international profile,” he says.
“As family-owned businesses are now being passed over to the second or third generation, there’s a need sometimes for partial exits because the new management may not be willing to run the company on a daily basis.”
In this regard, Khawaja says that a secondary listing in London serves as a compromise.
“Regional companies tend to not want to severe ties with their local jurisdictions, which means they want a local listing, as well as retaining access to a deeper pool of investors.”
As of August 2010, the LSE had a market capitalisation of $2.63 trillion, making it the largest stock exchange in Europe and the fourth largest in the world.
A growing number of high-profile GCC companies are seeking a dual listing in London, most notably ports operator DP World, which is planning to list on the LSE after it publishes its financial results in March 2011.
Meanwhile, Bahrain-based investment bank Investcorp is looking to float up to one third of European online payment firm Moneybookers on the LSE.
“You need one or two larger companies to do a successful secondary listing, and then that spurs the mid-market to believe it can work,” says Khawaja.
Grant Thornton is also currently advising on five Gulf initial public offering (IPO) mandates spread across Jordan, Kuwait and the UAE.