High hopes for new UAE listings

27 February 2014

The UAE’s stock markets are in dire need of successful initial public offerings to increase liquidity and offer diversification

As UAE stock market valuations reach record highs, the exchanges are in dire need of new, major listings that could help further grow their modest liquidity pools.

All eyes are fixed on a wave of initial public offerings (IPOs), including some major government-related entities, that are set to launch this year. Sources say Abu Dhabi’s General Holding Corporation (Senaat) has mandated banks to prepare a major IPO that could come to the market, at its earliest, at the end of this year.

Several local companies have similar plans to list domestically. If these turn out to be successful, 2014 could mark the beginning of a steady stream of offerings. That is a major priority for UAE markets, as trading on each exchange is dominated by just a handful of major stocks.

Index compiler MSCI’s upgrade of the UAE to emerging markets status in May, which will put it on the radar of a wide base of international fund managers, further hastens the need for deeper markets.

Plans to raise foreign ownership levels for companies such as Union Properties and Mashreq Bank could free up some much-needed room for trading. But the financial community is also urging the government to lift restrictions beyond some of the changes that are already in the works.

While a new law under process plans to lower free float requirements and offer the option for market-based valuations, many lament the fact that companies will not be able to sell down existing share capital.

With UAE markets’ price-to-earnings ratios having reached record highs in February, and the MSCI upgrade set to unleash a wave of foreign inflows, the investor appetite is there.

The challenge will be using the pipeline of planned IPOs, combined with regulatory changes, to develop long-term markets rather than just another temporary high.

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