UAE financial markets to trade rights issues
The UAE capital markets regulator Securities and Commodities Authority (SCA) said yesterday its board has approved a regulation for trading in rights issues on the country’s financial markets. The regulation allows a shareholder who does not want to or cannot subscribe for the share increase to sell his rights for financial benefit.
“The regulation will provide new investment options and give greater depth to local financial markets. It also seeks to further develop the markets and to allow the trading of new securities for more relief for shareholders of listed companies, giving them priority of trading in their capital increase issue rights in accordance with the best international practices,” SCA said in a statement.
“This new financial tool is arguably an addition to the markets and will further boost trading on those markets,” it added.
Reacting to the development. Mohammad Ali Yasin, managing director of NBAD Securities, told Gulf News: “I think, it’s a very positive move as far as the markets are concerned as it introduces a new tool which will help increase liquidity and gives the shareholders of public companies the opportunity to achieve returns on their rights issue without participating in it. It will also ensure that pricing of the rights issue is fair and acceptable to the market as if it is too high, the issuing company takes the risk of not raising the full amount at that high pricing,”
“This will also represent a new source of revenue for brokerage companies and the markets,” he added.
As of now, if the shareholder doesn’t have the ability to subscribe to the new shares, his portfolio in that company gets diluted and his new shares rights are given to another shareholder without him making any money out of it.
SCA said the approval from its board for the new regulation followed a meeting at its Dubai headquarters and presided over by the board chairman, Sultan Bin Saeed Al Mansouri, the Minister of Economy.
Tariq Qaqish, fund manager and head of asset management, Al Mal Capital, told Gulf News the rights issue is now going to be an option.
“So, for instance, if you have a rights issue at Dh1.5, there will be a time for you to trade the right without paying. This will definitely affect or loosen up the pressure on the stock before it goes to rights issue. Investors, when they see that they are going to pay Dh1.50, they will start selling what they have to buy at Dh1.50. This will reduce pressure on the stock, it will also create more liquidity in the market and, at the same time, you will have clients who will also benefit from the mispricing between the rights and the actual price. I think this is positive.”
An SCA official told Gulf News the regulation will become effective as soon as it is published in the official gazette, which will be sometime this year.