When will the IPO drought end? Some of the finest financial brains in the region this week gathered at a forum organised by the Dubai Financial Market (DFM) to seek to answer that difficult question.
After a morning's brainstorming, the answer seems to be that while the DFM has put in place an increasingly efficient and flexible regime for public share offerings, external factors are all-important for determining investor appetite for new flotations.
Economic, financial and geopolitical issues mean that investor uncertainty is likely to prevail for a while yet. But when there is an upturn, DFM is very well placed to take advantage.
There have been no IPOs on UAE markets this year. That compares to an all-time high in 2014, when a record Dh10bn was raised in new share issues.
The oil price, worries about a global economic downturn (led by China) and regional security issues have knocked investor sentiment sufficiently to prevent new share flotations.
Some IPOs scheduled for the markets were called off late in the day; others were mooted but then postponed. In some cases, owners are looking at other ways to unlock capital.
This is a shame, because DFM has made IPOs a core part of the strategy which puts financial services at the heart of Dubai’s economic development plans. Finance is intended to be the next engine of growth for the emirate, aiming to increase the proportion of GDP from the sector from about 12 per cent, where it is now, to about 18 per cent by 2024.
That is still lower than the great financial centres of New York, London and Singapore, which shows just how much potential there is.
Much of the DFM’s effort has been directed towards increasing the supply side of the investor equation, by increasing the number of IPOs and growing the region’s capital markets, thereby facilitating the demand side, especially in attracting greater overseas liquidity.
Local markets are still dominated by retail investors, and UAE nationals account for half of the daily traded volumes. But the proportion of foreign investors has been rising steadily, to stand at more than 20 per cent.
It is a desirable aim to lure new classes of both issuers and investors. As currently constituted, markets do not reflect the strengths of the UAE economy. Real estate, construction and finance dominate markets disproportionately, to the detriment of trading, commercial and services.
Why have those sectors not gone for IPOs? A straw poll revealed that the main concern of potential issuers was still the regulatory set-up in the UAE, but only by a small majority. Several recent measures – on reducing the minimum proportion of shares to be listed down to 30 per cent from the previous 55 per cent, rules to sell-down capital, and book-building provisions – were all greeted warmly. More of the same was required.
Family businesses thinking to go IPO were concerned about the regulatory factors, but also about the stricter corporate governance requirements coming with public status. There was a tangible sentiment that investment from private-equity partners, equity alliances with industry peers, and fixed-interest debt were all suitable alternatives to public flotation for the great trading families of the UAE, at least as long as the current uncertainty continues.
That too is a shame, because DFM – and the Dubai International Financial Centre – has now developed a core of expertise in IPOs that is just crying out to be used. Investment bankers from the biggest financial institutions in the world told the forum attendees that they had the right skill set to construct the right equity story for a good IPO, and showcased the management and advisory expertise gained during last year’s successful IPO spree.
The desire is there on the part of DFM, the market rules and regulations have been drastically improved, the big family businesses all have IPO plans in their in-trays, and there is a pool of advisory and professional and advisory taken to execute the flotations.
Once the uncertainty in global markets is resolved, Dubai looks well placed to embark on another hectic round of IPO activity. But the timing of the next share float spree is out of its control.
fkane@thenational.ae
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