TBY talks to executives in local stock exchanges on the changes in the market and the instruments the exchanges can use to overcome economic challenges.
After some turbulent trading, are you hopeful that there will be some more interest from companies in floating their shares?
ESSA KAZIM Naturally, the primary market is highly correlated to the secondary market, and as we all know the stock markets have been going through unfavorable conditions due to the repercussions of the global economic crisis. Consequently, IPOs have been in a period of slowdown over the last three years. However, we have been engaged in continuous discussions with potential issuers, and we can see an enormous backlog that will flow into the market once conditions are more favorable and business owners realize the possibility to have attractive valuations. According to an independent survey commissioned by the DFM, the majority of respondents from private and family businesses were interested in going public over the next two to three years as they acknowledge the importance of tapping into capital markets to fund their expansion plans and sustain growth. Undoubtedly, taking a private company into the public arena is an essential step in the preparation to meet challenges by embracing international best practices in the company’s management, corporate governance, and investor relations.
UAE shares are still depressed compared to the boom years that ended in 2008. Will prices return to those levels?
JEFF SINGER Prices reached unrealistically high levels in that period. Much of the foreign money that flowed into the UAE was hoping to take advantage of a revaluation of the dirham against the dollar, which never took place. Many investors were also too optimistic about Dubai’s short-term economic prospects. The Emirate’s fundamental strengths as a hub for business, finance and trade are not in doubt; unfortunately these investors confused the positive long-term trend with a likelihood of quick profits being always available on the stock market. The environment in Dubai, as in the world as a whole, has changed. I don’t believe those high prices are coming back in the near future. I am pleased to say that most of the companies that NASDAQ Dubai is talking to about carrying out an IPO in future are fully aware of that. They are looking forward, not back, and they realize that going public with a realistic valuation is still a very attractive option for them, compared to other ways of raising capital.
What new instruments and platforms are being developed to drive the evolution of Dubai’s stock exchange?
EK The DFM spares no effort and takes numerous initiatives to lay out the necessary framework for various market enhancements. As part of these efforts we have shifted to a delivery versus payment (DVP) model to embrace international best practices and we have successfully consolidated with NASDAQ Dubai, creating a larger and unified liquidity pool and diversified asset classes through the trading of NASDAQ Dubai securities on the DFM platform. Recently, this drive was reinforced through the trading of Dubai Gold Securities via our platform as well. As for developments in the near future, we are now in the process of introducing new market enhancements including short selling, securities borrowing and lending, and market making. We are confident that these widely recognized developments over the last two years have set the market on the right track for sustainable growth.
You have called for a radical revamp of the UAE’s capital markets to “create an underpinning for long-term growth.” What are your key recommendations?
JS The UAE should consider floating more of its government and quasi-government companies. It has excellent businesses that investors would love to buy. Flotation would raise money for the government, support the corporate governance practices of the companies and therefore their performance, and enable investors to share in their success and diversify their UAE exposure. Such IPOs would show family and smaller companies that the government stands behind the capital market, which will encourage many of them to go public as well. The UAE would also benefit from a relaxation of restrictions on the foreign ownership of its listed companies. This would increase overall investment. Introducing short selling, with stock lending and borrowing, would also be a step forward as it would enable investors to hedge risk and allow investors to stay in the market when the market falls. A central clearing house is also part of a mature framework that sophisticated investors would like to see. Best practice market regulation is also key. Investors like clear and sensible rules that are coherently enforced.
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