MARKET IN FOCUS: GCC: Courting exposure

21 September 2007
Dubai is not the only government in the GCC seeking to buy a foreign stock exchange. The Qatar Investment Authority (QIA) made an offer in mid-September for Nasdaq's 31 per cent stake in the London Stock Exchange (LSE). However, the paths of the two transactions are taking markedly different turns.
Borse Dubai, the holding company of the Dubai International Financial Exchange (DIFX) and the Dubai Financial Market (DFM), has met with regulatory censure, board resistance and government and public disapproval in its attempt to take over the Nordic exchange OMX.

The LSE views QIA's offer for the LSE stake benignly, despite rebuffing previous offers for Nasdaq's holding in the exchange. 'We can't block bids but have had a number of hostile bids that we have seen off,' says an LSE spokesperson. 'The LSE looks favourably on Qatar's interest.'

Qatar has another advantage. The chairman of the LSE, Chris Gibson-Smith, is a non-executive director of the Qatar Financial Centre Authority.

In contrast, Borse Dubai's $4,000 million cash offer for OMX has met with a hostile reception. The Swedish Financial Supervisory Authority ruled in late August that Borse Dubai's initial approach to investors broke stock market rules. Borse Dubai faces stiff competition from Nasdaq to acquire the exchange. In June, the OMX board recommended Nasdaq's offer.

Borse Dubai's link to the Dubai government has stirred public debate about whether its ownership of OMX is appropriate. The Swedish government is selling its 6-7 per cent stake in the exchange as part of its privatisation plan and public opinion does not support its sale to a foreign government.

The LSE does not have such concerns. 'We're interested in a stable, long-term investor that will support the business. We are neutral as to where the investor comes from, whether it is Qatar or elsewhere. The Middle East generally is an area where there is huge growth and opportunity. For the LSE, the region is very interesting,' says the spokesperson.

The impact of the deals, should they both go through, are also expected to be different. QIA's ownership of a stake in the LSE will give Qatari companies listed on the lacklustre Doha Securities Market international exposure and possibly an easy route to

list abroad.

'It will present Qatari companies to the outside world,' says Qatar National Bank (QNB) senior economist Roy Thomas. 'Maybe some [Qatari] companies will list on the LSE and present themselves globally. A lot of companies like QNB are looking to expand internationally.'

In Dubai, the OMX deal is expected to boost the DIFX and DFM home markets. '[The OMX takeover] is something that would expand Dubai's foot print and make the financial centre a bigger game for Dubai,' says Abdulkadir Hussain, chief executive officer of Mashreq Capital. Borse Dubai puts two exchanges under one company that can go after a bigger international footprint. It makes the entire package more appealing.'

The deals are the latest in a series of high profile transactions pursued by Gulf governments that have kept them in the international spotlight. However, if Qatar is successful, it could make it harder for Dubai to win its battle. If Nasdaq sells its stake in the LSE to Qatar, it will have the funds to increase the value of its bid for OMX, perhaps delivering Dubai the double blow of losing out on the OMX transaction and forcing the emirate to slip back in the race to be a regional financial hub.

Victoria Robson

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