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DFM-ADX Merger being Mulled

DUBAI — A possible consolidation is being discussed between the owners of Dubai Financial Market and Abu Dhabi Securities Exchange, DFM Executive Chairman Essa Kazim said.

“It is in the interest of everybody to consolidate,” Kazim told reporters on the sidelines of a news conference. He declined to provide further details. Abu Dhabi’s ADX General Index has tumbled 39 per cent during the past two years while Dubai’s benchmark index slumped 61 per cent.

Merging the two exchanges would create the second-biggest bourse in the Arab world after Saudi Arabia’s Tadawul All Share Index, with a combined market capitalisation of $104 billion, according to data compiled by Bloomberg.

DFM’s profit fell by almost half in 2009 as market turnover slumped 43 per cent to a five-year low of $47.2 billion. ADX turnover slid 70 per cent last year to $19.1 billion. This collapse in trading is spurring the UAE bourses to consolidate, analysts said, with many questioning the wisdom of having three stock exchanges — DFM, ADX and Nasdaq Dubai - in a country of 5 million people, while consolidation would boost liquidity and with it valuations.

“The growth potential of the UAE markets is limited without such a move,” said Mohammed Yasin, Shuaa Securities chief executive. “What doesn’t make sense is for the markets to stay the same — the financial crisis has made for less resistance to consolidation. It has been discussed a few times and I think the political will is there,” Yasin said.

Fahd Iqbal, EFG-Hermes Holding SAE’s Dubai- based strategist, said, “We don’t see why the country should have three stock exchanges.” “It really is a matter of streamlining to achieve a better scale.” Mergers are critical to stock exchange growth and a combination of the two bourses “would go a long way” to prompting growth, Iqbal said.

DFM and Nasdaq Dubai, the UAE’s two other exchanges, will conclude a merger accord in one to two weeks, Kazim said at the press conference. DFM is paying Nasdaq OMX $121 million for its one-third stake. “This is one of the industries that you always gain from a merger, from consolidation,” Kazim said.

DFM made an offer in December, 2009 to buy rival Nasdaq Dubai for $121 million to expand its asset class offering and raise additional revenue. The DFM and Nasdaq Dubai will use a single trading platform and synchronize trading hours, with these changes taking a few weeks to complete, Kazim said.

But Nasdaq Dubai and DFM will remain separate because of their different regulatory regimes, Kazim said, with the former governed by Dubai Financial Services Authority, while DFM is bound by the rules of the Abu Dhabi-based Securities and Commodities Authority.

“As long as we have two separate jurisdictions we will continue to have two separate markets, but one exchange,” said Kazim.

On Nasdaq Dubai, DP World just one of its 16 equity listings — is one of the few listings to see daily turnover. The ports operator is seeking a London listing, saying it is unhappy with its market valuation.

· abdulbasit@khaleejtimes.com

· With inputs from agencies