• Home
• /
• Local business

Tighter Lending Could Spur Dubai Initial Public Offerings

DUBAI - Tighter bank lending conditions could spur more firms in the United Arab Emirates to go public, the chairman of Borse Dubai said, with “one or two” new listings expected on the Dubai Financial Market by year end.

“Most of the companies would prefer to go directly to the banks for their financing requirements — hardly any company goes to the capital market whether it’s a bond issue, a sukuk issue or an IPO,” said Essa Kazim, executive chairman of Dubai Financial Market and chairman of Borse Dubai.

In the past 12 months, only one initial public offering has been completed on the Dubai Financial Market, which is 80 percent owned by Borse Dubai.

Construction firm Drake and Scull raised $322 million, listing in March after completing an initial public offering in July last year.

It finished on Sunday at a record high of 1 dirhams, but has never closed above its IPO price of 1 dirham and the firm has begun buying back up to 10 percent of its shares after receiving regulatory approval.

Companies are reluctant to float in distressed market conditions, with the DFM’s general index having fallen 61 percent over the past 12 months, although it is up 42 percent since the start of March.

“For companies that wish to have long-term financing it’s very difficult to get it from the banking sector, so the only way to do it may be through a publicly listing,” Kazim said.

When asked whether there would be any new IPOs on the DFM in 2009, Kazim said: “We might see one or two, it’s a decision that’s beyond my control. There are some big companies looking to go public.

“If you asked me in the third quarter last year I would have told you the (IPO) interest was great, and that interest is still there — people don’t change their minds in terms of the strategic decision — but probably they are waiting for the right market conditions to go public and I’m sure the number is growing.”

Kazim said a priority would be to attract listings to diversify the DFM away from the dominant and closely-connected banking and real estate sectors.

“If you look at a pie chart of Dubai’s GDP structure, you don’t see that representation on our market,” said Kazim.

The DFM has asked the UAE regulator to allow trading in share rights issues. Currently, share rights issues are restricted to existing shareholders who are entitled to acquire a certain amount of new shares issued in proportion with their present share holding.

But Kazim said shareholders should be able to sell this allocation, if desired.

“This would help generate more liquidity in the market and also help investors,” said Kazim.

“Some people might not have sufficient financing to participate and so could they sell their rights to somebody who probably doesn’t own any share in the company. It helps everybody.”