The quiet revolution: can IPO's transform the UAE into another Hong Kong?
Go back a couple of decades and the Hong Kong stock exchange was something of a joke in global terms with just a handful of listings. Just look at it today. A similar transformation could occur in the United Arab Emirates in a much shorter period as hundreds of candidates for initial public offerings start to line-up.
Yesterday ArabianMoney took part in the Dubai Financial Market’s closed conference for such candidates. We can’t report directly on the confidential proceedings. But we can explain the background to what is going on in the UAE and where it may lead in the near future.
Many IPO candidates
Like Hong Kong in the past the UAE is dominated by family businesses and government related entities. Experts said around 200 large to medium sized companies are fit for IPO. That’s enough to double the size of the local stock exchanges which are said to be in merger talks to create a larger platform as a single UAE bourse, probably located in Abu Dhabi.
The forum yesterday examined the key reasons why UAE companies might IPO. For the majority of potential candidates it comes down to an opportunity to either cash out or establish a market value for a company. IPOs can also open a path to growth through mergers and acquisitions financed by the issue of new shares.
What has been holding this potential tidal wave of IPOs back? Basically the local stock market crashed in 2006 and only in the past year has recovered strongly. Indeed the Dubai Financial Market only hit the bottom of its sell-off as recently as January 2012. This year it is up over 80 per cent.
A long-awaited new Commercial Companies Law is also going to allow firms to increase their capital in an IPO, something that is not now possible. But it is not only about raising money and selling shares.
DFM officials are keen to stress the transformational effect of preparing for an IPO on a company’s governance. Like a marriage things are never quite the same again, and generally for the better.
It’s a quiet revolution behind the closed doors of companies and in the headlights of public scrutiny of financial results. The whole of corporate UAE wll mature and prosper under this new regime. Hong Kong did not get there in a day and this is a multi-year revolution.
But seriously the IPO revolution could transform the UAE stock exchange into another Hong Kong and dynamise its financial and corporate life in the process. The experts we talked to yesterday said the time-lag before IPOs meant that we should expect them to start coming in the second quarter of next year and continue regularly after that.
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