Listing target: DIFX has a long way to go

Less than a month to go before its first anniversary, the exchange has just five equity listings. Nasser Alsha'ali, Chief Operating Officer of DIFX said: “There have been some slow down in the initial public offering (IPO) schedules purely due to external factors. However, there is a healthy pipeline of IPOs in the region.”

The recent market slump in the Gulf region combined with the geopolitical issues such as the war in Lebanon and the uncertainties regarding Iran's nuclear standoff with the West have dampened the IPO market.

Although the number of issues have come down from last year, the few regional IPOs which came to the market this year were well received. According to a recent report by Trowers & Hamlins, The GCC markets have raised approximately $15 billion during the past 12 months through equity. Some $10.26 billion was raised in the second half of 2005, while $4.43 billion was raised during the first half of this year.

Investment bankers and brokers said yesterday that there is still huge demand for IPOs in the Middle East region, but most issuers are waiting for the market conditions to improve. “Many issuers are on a wait and watch mode. The conflict in Lebanon also adversely affected the market sentiment. With regional markets showing signs of recovery it will be a matter of few months when new issues will start coming to the market,” said an investment banker.

International investment bankers such as Morgan Stanley and HSBC had announced earlier this year that they were working on several regional IPOs which targeted listing on DIFX. There are already talks of big IPOs that could hit the market later this year or early next year.

Kingdom Holding Company owned by Saudi royal Prince Alwaleed bin Talal bin Abdulaziz recently confirmed that the company is considering an IPO though the final date for the issue has not been decided yet. While the company and DIFX officials are tight lipped about the listing of the company on DIFX, investment bankers hinted at a strong possibility of dual listing in Riyadh and Dubai.

At the time of its launch, DIFX hoped to achieve up to 15 share listings by the end of 2006. The exchange so far has 6 equity listings including the latest listing of Al Baraka Banking Group. Other issuers include Investcom, Fortune Management Inc. and Kingdom Hotel Investments, all ordinary shares and two GDR listings from Man Industries and Rana Sugars.

Following the takeover of Investcom by South African cellphone operator MTN, the share has been delisted from DIFX, bringing down the total listings to five. Now with just four months to go, it is highly unlikely that DIFX will reach its target.

“We cannot say anything about the number of listings at the moment, but we know that there is big interest in listing on the exchange from across the region,” Alsha'ali said.

In addition to equity issues DIFX has listings of other instruments such as sukuks and EMTNs. While Ports, Customs and Free Zone Corporation and Aabar Petroleum have listed their sukuk issues, Mashreqbank and National Bank of Dubai have listed their EMTN issues on DIFX.

Analysts said the exchange is a long way from becoming a liquid market. “Part of the problem lies in the low number of equity listings. Improved investor awareness and the entry of foreign institutional investors could make a big difference,” said an analyst.

In the absence of international listings, the time zone advantage of DIFX being at the cross-roads of Europe and Asia is yet to materialise. At the time of its launch, it was widely believed that the new exchange would create a large number of cross listings and arbitrage opportunities for international investors trading seamlessly from Hong Kong, Tokyo, Singapore, London and New York.

Analysts believe that in the absence of international shares, listing of some of the big local and regional companies such as Emirates Airlines, DP World and Kingdom Holding can change the fortunes of the young exchange.

In the recent months, there were rumours that in an effort to improve the liquidity on the market, DIFX is planning to merge with DFM. However, managements of both markets dismissed it as pure speculation. “There is no truth in such rumours. DFM and other regional exchanges are complementary to what we do. We will certainly explore areas of cooperation to improve the business for all.” Al Sha'ali said.