Call for corporate takeover code

Qatar Holding bought Harrods, London luxury department store, for £1.5 billion.

The UAE lags its regional peers in developing a corporate takeover code to promote merger and acquisition (M&A) activity in the country, a senior banker said. Guidelines for private companies taking over publicly-listed businesses are needed after the global downturn, said Peter Fort, the executive director at the investment bank Morgan Stanley in Dubai.

"In the UAE there's almost a complete lack of M&A regulatory framework, which makes M&A transactions that involve public companies very difficult," Mr Fort said. Regionally, Saudi Arabia and Bahrain recently introduced M&A regulations based on similar legislation in the US and Europe, outlining rules for how such transactions should take place. The absence of specific takeover codes in the UAE stopped deals involving public companies, Mr Fort said.

After five years of steady growth in the UAE, the M&A boom that generated bumper profits for the region's investment banks came to a halt in 2008. The global downturn led to a freeze of the debt finance that was once used to leverage the big deals. The Indian company Bharti Airtel's US$9 billion (Dh33.05bn) acquisition of some of the Kuwaiti telecoms Zain's African assets, and Qatar Holding's £1.5bn (Dh8.19bn) purchase of the luxury London department store Harrods are among the few eye-catching deals in the region so far this year.

M&A activity in the MENA region is expected to remain subdued this year after a 40 per cent drop in deals in the region last year compared with 2008, said Mr Fort. "In the MENA region, we are seeing a stabilisation of volumes with the first quarter looking to be more hopeful than the second quarter, but the trends are indicating that 2010 will be flat," he said. As well as undeveloped M&A regulations, other significant obstacles remain to boosting takeover activity.

With corporate lending in the region still sluggish as lenders' appetite for risk remains low, availability of the finance needed to put together deals is scarce. Regional bond markets are not yet fully developed enough to pick up the slack from the banking sector, so many transactions are being driven by sovereign wealth funds (SWFs). Of the top 10 transactions for the region last year, SWFs from Abu Dhabi were involved in five deals and Qatar SWFs in three.

Pricing may not be right for some parties as the region recovers from the financial crisis, with the difference in the expectations of buyers and sellers on valuation blamed by investment bankers as a hurdle. But Mr Fort is optimistic takeovers in the region will increase in the medium term to surpass the peaks of 2007. For that to happen, there may need to be consolidation within the banking and property sectors, especially in the UAE.

Tamweel and Amlak, the Islamic home financiers that ceased new lending in November 2008, were to be merged into a new organisation but there has been little progress in the 18 months since. "I don't think that anyone would disagree that consolidation is required," Mr Fort said. "It will come in time; the question is when." Fragmentation in the country's property sector also created potential for M&A activity, he said.

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