“GOV­ERN­MENT SHOULD PUSH FOR MORE IPOS”

Qatar Today - - CONTENTS -

The gov­ern­ment has a role to play in sup­port­ing more Ini­tial Public Of­fer­ings (IPOs) in Qatar, ac­cord­ing to Salah Shamma, Head of In­vest­ment – MENA Eq­ui­ties at Franklin Tem­ple­ton In­vest­ments ME.

Qatar is con­sis­tently viewed as a ma­jor des­ti­na­tion in which to do busi­ness. How­ever, the as­so­ci­ated growth that ac­com­pa­nies such de­mand is not re­flected in the coun­try's stock ex­change, as ev­i­denced by the fact that there's only been one new list­ing re­ported in the past five years.

The gov­ern­ment has taken note of this and has been proac­tively try­ing to en­cour­age pri­vate com­pa­nies to list. That be­ing said, not many IPOs have come in the mar­ket, which is still dom­i­nated by the gov­ern­ment sell­ing down eq­uity stakes in state as­sets.

Me­saieed Petro­chem­i­cal Hold­ing Com­pany Limited (MPHCL), part of Qatar Petroleum, is the only listed com­pany which has come out with an IPO in Jan­uary 2014 and de­spite a sig­nif­i­cant pos­i­tive re­sponse, in­ter­est re­mains lack­ing from oth­ers.

“Though some pos­i­tive steps were taken by the reg­u­la­tors the big chal­lenge is for the gov­ern­ment to mo­ti­vate com­pa­nies to go public. Even the MPHCL is­sue was open only to Qatari na­tion­als and in­cluded a free shares op­tion if in­di­vid­u­als held onto the stock over a pe­riod of time,” Salah Shamma, Head of In­vest­ment – MENA Eq­ui­ties at Franklin Tem­ple­ton In­vest­ments ME points out.

Such pref­er­en­tial treat­ment has the po­ten­tial to cre­ate dif­fer­ing views on a stock depend­ing on whether the in­vestor is from Qatar or the in­ter­na­tional mar­ket place. “The reg­u­la­tor should en­sure that ev­ery­one who par­tic­i­pates is do­ing so within the same frame­work and this should play a pos­i­tive role in en­sur­ing that the mar­ket is as open as pos­si­ble for in­ter­na­tional in­vestors. As the mar­ket con­tin­ues to de­velop, there will be a re­quire­ment for more liq­uid­ity and the reg­u­la­tor shouldn't rely on lo­cal cap­i­tal to bridge that gap,” he says.

Ac­cord­ing to Shamma, eq­uity mar­kets pro­vide a vi­tal fo­rum for cor­po­ra­tions to ac­cess long-term cap­i­tal. This is par­tic­u­larly im­por­tant in the af­ter­math of the fi­nan­cial cri­sis when over­all liq­uid­ity be­came less avail­able. The IPO mar­ket in Qatar has, so far, typ­i­cally been used as a plat­form for wealth trans­fer rather than a pri­mary source of fi­nanc­ing. As such, the reg­u­la­tor has a role to pro­mote the eq­uity mar­kets as an ad­di­tional av­enue for cor­po­ra­tions to di­ver­sify their sources of fund­ing.

In­ter­na­tional in­vestors will not shy away as Qatar has an ap­peal­ing econ­omy and is a des­ti­na­tion for many. The coun­try is pro­jected to grow by more than 6% over the next five years, brack­et­ing it in the ranks of the fastest-grow­ing economies world­wide. “This is a re­source-rich coun­try with large sovereign re­serves driv­ing sub­stan­tial non-oil sec­tor growth and sup­ported by a strong pop­u­la­tion growth. Ad­di­tion­ally the cur­rency is dollar-pegged, so who would not like to in­vest in the coun­try?” he asks.

Shamma also sug­gests that there is a real op­por­tu­nity for large Qatari fam­ily-owned busi­nesses to look into list­ing on the eq­uity mar­ket. It is es­ti­mated that fam­ily-owned busi­nesses con­trol close to 80% of the coun­try's non-oil wealth. That said, one of the chal­lenges re­mains the min­i­mum list­ing amounts re­quired for com­pa­nies go­ing public. Cur­rent guide­lines sug­gest that this should be at least 40%, but for many this may rep­re­sent a loss of too much con­trol over pro­ceed­ings.

“In an ideal world, such com­pa­nies are more com­fort­able with 20% to 25% and the gov­ern­ment should per­haps recog­nise this to pro­mote a more ac­tive IPO mar­ket.”

Shamma points out that the UAE has also been fac­ing sim­i­lar is­sues with re­gards to fam­ily-owned busi­nesses and large com­pa­nies who were also re­luc­tant to cede 55% of their com­pa­nies in an IPO. How­ever, in an ef­fort to ad­dress the is­sue, the UAE gov­ern­ment has is­sued a new com­pany law which re­duces the min­i­mum free float to go public to 30%. The new law, is­sued last month, is ex­pected to en­cour­age fi­nan­cial mar­kets and new IPO ac­tiv­ity on the UAE mar­kets.

With con­tri­bu­tions from the nonoil sec­tor to the GDP grow­ing fast the gov­ern­ment should amend ex­ist­ing laws so that there will be more par­tic­i­pa­tion from the fam­ily-owned busi­nesses and the in­vestors will have ac­cess to re­tail, hos­pi­tal­ity and health­care and other sec­tors, all of which show prom­ise in the mar­ket given on­go­ing devel­op­ment plans.

Qatar has al­ready taken steps to in­crease For­eign Own­er­ship Lim­its (FOLs), which in turn are ex­pected to in­crease its weight­ing in the Mor­gan Stan­ley Cap­i­tal In­ter­na­tional (MSCI) Emerg­ing Mar­kets in­dex. Since this In­dex cov­ers over 800 se­cu­ri­ties in 23 mar­kets worth more than $500 bil­lion (QR182 bil­lion), it will at­tract sig­nif­i­cant liq­uid­ity which, in turn, re­duces volatil­ity in the mar­ket.

FTSE In­dex

Qatar, which is on the watch list of the Fi­nan­cial Times Stock Ex­change (FTSE) 100 Group, the in­dex­ing unit of the Lon­don

The gov­ern­ment has a role to play in sup­port­ing more Ini­tial Public Of­fer­ings (IPOs) in Qatar, ac­cord­ing to Salah Shamma, Head of In­vest­ment – MENA Eq­uity at Franklin Tem­ple­ton In­vest­ments.

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