TWO IPOS IN THE PIPELINE, SAYS DFM
▶ In an exclusive interview with Dania Saadi, index chief predicts strong future on improving investor confidence
The Dubai Financial Market (DFM), the only publicly-listed stock exchange in the Arabian Gulf with a market capitalisation of Dh127 billion, expects two IPOs by the end of next year as investor confidence begins to pick up, a senior bourse official said yesterday.
“Between now and next year, I expect two companies to list because some of the others are hesitant,” said Hassan Al Serkal, executive vice president of DFM.
“The companies we have met with [to discuss potential IPOs] are more than six or seven companies. The momentum is there but they are waiting for stability and the right time to come to the market.”
Theme park operator DXB Entertainments, formerly Dubai Parks and Resorts, was the last major listing on the DFM in 2014, when it raised Dh2.5bn. Regional political instability, poor investor appetite and the economic slowdown from a slump in oil prices have hit investor confidence in Gulf equity markets.
The DFM is down by about 4 per cent year-to-date, the thirdworst performing market in the Gulf region behind Qatar and Oman.
Still, Emaar Properties, Dubai’s biggest listed developer, last month announced plans to float up to 30 per cent of its real estate business on the DFM. The listing, which would be the third for the developer, is expected to take place this year, said Mr Al Serkal.
The exchange is also on track to introduce short-selling in 2017 on selective stocks and start listing next year real estate investment trusts (Reits), which are entities that own and manage income-producing property.
Nasdaq Dubai, the DFM’s sister market, had its first IPO in March since March 2015 when Emirates NBD’s Sharia-compliant real estate investment trust, ENBD Reit, raised US$105 million, the second listed Reit in the UAE after Emirates Reit, which is also on Nasdaq Dubai.
The DFM, which currently has 12 dual listings, is also talking to two Kuwaiti companies to list their shares on the Dubai bourse, said Mr Al Serkal.
According to advisory PwC, there were 10 Gulf IPOs in the first quarter of this year, the highest number for a quarter in the past five years, thanks to the launch of Nomu, a parallel market in Saudi Arabia.
The revitalised outlook for IPOs in the UAE is in line with the global trend.
Advisory EY expects flotations this year to exceed last year after the first quarter was the most active by global number of IPOs since the first quarter of 2007.
Meanwhile, the DFM hopes to introduce regulated short-selling and Reits as part of a 2021 strategy aimed at diversifying asset classes to elevate the bourse to developed market status.
The bourse announced in January plans to introduce covered short-selling – the practice of selling borrowed shares in the hope of buying them back later at a lower price – in a few months, following in the footsteps of Abu Dhabi Securities Exchange, which also has revealed plans to start short-selling services gradually.
“We are amending the rules and are in contact with [market regulator] the Securities and Commodities Authority (SCA), and once we are ready with the system we will start,” said Mr Al Serkal.
“We are talking with the [regulator], which would like to have the services in both markets [DFM and ADX].”
Short selling, while illegal across the Gulf (with the exception of Kuwait), has been practised by institutions throughout the region in the form of naked short-selling. Naked short selling, which has been blamed for regional stock market routs, is the practice of shorting the market without borrowing the security, or making sure it can be borrowed.
“Properly regulated short selling can substantially increase the liquidity of a market and liquidity is key for institutional funds in public equities managing other people’s money,” said Hasnain Malik, the Dubai head of equity research at Exotix Partners, an investment bank specialising in frontier markets. “Short-selling simply allows market participants to action their views more efficiently, it does not change those views.”
SCA introduced regulations enabling short selling in 2012 for licensed market makers, with other institutions requiring permission from the regulator and the relevant exchange.
A market maker is a broker and dealer that balances supply and demand for shares by matching buyers and sellers. It also stands ready to buy or sell shares when there are no public buy or sell orders, thus creating a market.
Covered short-selling or regulated short selling will be introduced in phases and the bourse is still ironing out the details, said Mr Al Serkal.
“Maybe we will start with institutional investors first,” he said.
“We may select certain companies. Maybe companies that have more trading may attract more interest from foreign institutional investors.”
Short selling is being introduced to help lift liquidity and to attract more foreign investors, who currently have 22 per cent of DFM’s market capitalisation, he added.
“We at the DFM are working on certain asset classes like derivatives, Reits, and these things in order to prepare the infrastructure, regulations and rules so that when the market is ready we introduce them,” said Mr Al Serkal.