DIFC chief plays the money waiting game

Nasser Saldi says this is a tough crisis but believes it important to keep calm and carry on.

DUBAI, UNITED ARAB EMIRATES – Oct 22: Dr. Nasser Saidi, DIFC Chief Economist during the interview at DIFC in Dubai. (Pawan Singh / The National) Story by Sara Hamdan
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Nasser Saidi, the Dubai International Financial Center's (DIFC) chief economist, is calmly waiting for the dust to settle. He is as aware as the next economist of the global market meltdown and the growing reality that a global recession is at hand, perhaps a very difficult one. Nonetheless, Mr Saidi, a former minister of economy in Lebanon and a University of Chicago professor, remains an unreformed optimist in an increasingly bitter sea of doomsayers.

Leaning back in a black swivel chair last week, his hands clasped loosely in his lap, he nods slowly in acknowledgement that now is not the ideal time for a company to consider going public. He then smiles, however, and reiterates a forecast that many in the industry find implausible to say the least: 150 initial public offerings (IPOs) in the GCC by the end of 2011. He even insists that figure could prove to be too conservative. He is not discouraged by the mounting numbers of IPOs that have been delayed in the region, including the plans of Al Qudra Holdings, Saudi's Zamil Group, Gulf Capital and Emirates Post. Instead, he points to the success of the regional IPO market before September.

"We would have had more IPOs had it not been for the global crisis," he says. "There is now an IPO backlog in the region; a lot got delayed, but they are just waiting until conditions stabilise and will then get back on track." Already, Mr Saidi adds, regional financial conditions are improving due to concerted government efforts to protect the market by injecting liquidity into the system and guaranteeing bank deposits.

A healthy flow of new companies listing shares on local markets is crucial to the GCC's ambitions to diversify the region's economy, and it is especially important for Mr Saidi's employer. The DIFC is the cornerstone of Dubai's efforts to become a global financial centre, and convincing companies to list shares and tap local capital markets is one key to success. Many analysts consider that task a huge challenge at a time when markets are in a slump that some believe could last for years.

Yet Mr Saidi argues there is still no reason that past cannot be prologue. He highlights that in the first three quarters of this year, despite the credit crunch and the troubles of Wall Street, IPOs in the region remained healthy compared with the same period last year. Indeed, volume exceeded US$13 billion (Dh47.7bn) and 50 IPOs were completed in the Mena region in the first nine months of this year, compared with $6.8bn for 54 IPOs in the same period last year, according to data from Zawya Dow Jones.

Mr Saidi emphasises that positive fundamentals in the region remain strong, with the IMF forecasting 6.6 per cent growth in the Gulf next year. "It is not a purely subjective feeling - look at the forecasts from the IMF [International Monetary Fund], the IIF [Institute of International Finance], Merrill, Goldman - it is clear that emerging markets as a whole and the Middle East in particular will outperform the developed countries," he says. "We are living a renaissance in the financial and economic sectors in this region, which eventually will be reflected in the IPO market."

Mr Saidi predicts that developed countries such as the US, the UK and others in Europe will be entering a phase where they need to restructure and recapitalise the financial industry, so the ability of their banking and financial industries to support IPO activity worldwide has diminished. "Our ability, however, remains intact. Our industry is strong and our companies have strong balance sheets," he says. "There are strong growth prospects in this region at a time when growth prospects in the US and Europe are not positive."

He has already targeted three areas of potential for the IPO market in the coming years, starting with family businesses in the region. Family businesses comprise about 85 per cent of businesses in the UAE, according to Mr Saidi, and are increasingly looking across borders to become more diversified, multinational firms - they can no longer rely solely on internal resources. There are succession problems, he says. As family members struggle to ensure that a business survives for future generations while becoming competitive on a global scale, the best exit is through the IPO market. "As families seek to diversify the sources of finance, more and more family firms will come to the market in IPOs, which is an extremely promising area."

Listings for family companies, which deal in a variety of growing sectors including tourism and insurance, will bring necessary variety to the region's exchanges. Mr Saidi also sees growth potential in the banking and finance sectors, which have enjoyed substantial federal support, although some regional banks have posted losses in the third quarter, including Shuaa Capital, which reported a loss of Dh371.1 million.

"As the banking and financial services expand and consolidations between companies occur, there will be marked pressure to remain competitive. So the banking and financial sector will be good for IPOs," he says. In the first three quarters of this year, the majority of IPOs in the GCC were in the financial services sector, with a total offering size of Dh11.7m for nine IPOs that included Alinma Bank and Ajman Bank. In the third quarter, however, there were no financial services IPOs in the GCC, as the few listings were limited to defensive sectors including power, utilities and telecommunications, such as Zain Telecom.

Mr Saidi is a proponent of privatisation and notes that the Government is eager to engage the private sector in public utilities and infrastructure services, which he says is another area to watch for future IPO listings. "This is another prime route for IPOs; abroad, privatisation has played a major role in encouraging people to participate in the markets and widen participation, which makes the market more resilient. This will happen here and will be a major driver for IPOs."

He also points to the region's 18 active free zones as an untapped opportunity for listings. The free zones - which include JAFZA Free Zone and Dubai Media City - are a means of diversifying economic activity and attracting new firms to the region. Mr Saidi proposes a two-tier market that will cater to smaller and mid-sized companies valued between $25m and $30m that are registered in the free zones.

"It is important to focus on the companies in the free zones and nurture them and bring them to the market, and we need to provide them with the possibility to IPO and list, just like in Europe and other places," he says. New regulations were implemented last week for the DIFX to extend trading hours and allow trading in dirhams to attract more international and retail investors. Mr Saidi believes the exchange is continually improving to adapt to demands that could include the need for a two-tier market in the future.

He says the changes to the global financial landscape are benefiting emerging markets, particularly the Middle East. Raising a cup of Moroccan tea to punctuate his claim, he says 40 per cent of total world production is produced in emerging markets. "Everything is shifting and it is no surprise that 75 per cent of growth in the past five years has been in emerging markets. As the shift happens, it must be accompanied by shifts in IPOs and market activities, which will include heightened activity in the Middle East."