Dubai: The IPO activity in the UAE has remained subdued for the past few years,
which can be broadly attributed to two factors — firstly and the most important one is the lack of favourable market conditions, and secondly the unfriendly regulatory requirements and procedures. Historically, the UAE stock markets, which have had a relatively drier spell compared to Saudi Arabia, witnessed a total of 10 companies being listed on respective UAE bourses between 2010 and 2014. However, in the last two years, the region was confronted by the declining oil prices and heightened economic uncertainty, which had a significant impact on the IPO activity in the UAE. As a result, there have only been two new additions since 2015 as most of the prospective companies either decided to shelve or defer their IPO plans because of deteriorating market conditions and dismal performance of recent IPOs.
The companies listed since 2010 were mostly quasi-government companies, which
suggest that capital markets are still elusive of attracting private companies. Moreover, the UAE bourses do not reflect the dynamics of the economy, as the banking, real estate and construction sectors dominate the overall market capitalisation, which undermines other economic sectors, especially in light of UAE’s long term diversification strategy. Hence, there is a lack of peer comparison for private companies operating in other economic sectors, which might be another reason for the subdued IPO activity in the past few years.
Given the dismal IPO activity seen over the past few years, the UAE government
recognised the importance of reviving capital market activity, which has led to a host
of measures being introduced since 2015. For example, the UAE has circulated new
draft IPO regulations for feedback from stakeholders, setting requirements
increasingly in line with international exchanges. In 2015, it issued the New Federal
Commercial Companies’ Law, under which businesses are able to float as little as 30
per cent of their shares than the earlier set threshold of 55 per cent, and permit
companies to conduct IPOs by selling existing shares rather than issuing new ones.
Additionally, it now allows IPO prices to be determined by book building — obtaining
indicative bids from fund managers rather than through a fixed-price evaluation
The UAE is also at an advanced stage of drafting a foreign investment law
that would allow 100 per cent foreign ownership of businesses outside free zones in
strategic sectors, thereby indicating the region’s openness to international
investment. The earlier 55 per cent requirement didn’t lead to many, especially
family-owned, businesses to initiate listing process, but the current lower rate is
expected to make it more appealing for business owners to participate in a float as
they can retain control of the company. Most notably, there is a tangible sentiment
that investment from private equity (PE) players, equity alliances with industry peers,
and fixed-interest debt are all suitable alternatives to public flotation for the trading
families of the UAE, at least as long as the current uncertainty continues.