Improved investor relations departments at UAE-listed companies will help to attract international and regional capital flows to local bourses and enable companies to raise capital at lower prices, said the Abu Dhabi Securities Exchange chief executive Rashed Al Baloushi.
The Securities and Commodities Authority (SCA) announced this month that its board had approved a proposal to compel listed companies to have investor relations (IR) departments.
“If people understand better what you as a company are doing, and if you have dedicated people on hand to clarify matters, demand for those companies will be increased,” said Mr Al Baloushi. “As a result the cost of raising capital will be decreased.”
Mr Al Baloushi said that although most companies listed on the ADX had some investor relations function, it was often unclear, particularly with smaller companies, which department was tasked with answering investor and regulators’ inquiries.
The SCA has not yet indicated when the regulations would be finalised or when they would come into effect.
The move was a positive one for local markets in the run-up to the UAE’s inclusion in MSCI’s Emerging Market Index, scheduled to take place in May, said Oliver Schutzmann, the vice chairman of the Middle East IR Society.
“It’s definitely something that will accelerate change in the market by improving the overall ability of companies to tap local and international capital,” said Mr Schutzmann, who is also the head of IR at Shuaa Capital. “It’s also a good opportunity for those companies that haven’t put proper investor relations departments in place to get started on the process.”
Most companies listed on UAE exchanges have their shares largely held by a small group of founder investors or by government entities, meaning that investor relations departments traditionally did not receive much attention, said Amer Khansaheb, the president of CFA Society Emirates, a non-profit organisation of investment professionals comprising portfolio managers, security analysts and investment advisers.
“Foreign investors do not know much about the businesses listed or the owners, and hence having a dedicated person that can answer investors’ queries and provide accurate information would give investors the confidence and ability to take decision on their investments.”
A number of companies had made strides in recent years in boosting their IR capacity, said Mr Schutzmann, including Emirates NBD, DP World, Almarai and National Bank of Abu Dhabi.
The SCA said that the new regulations would mandate that a specific person be tasked to manage communications with investors, although they need not be employed exclusively for that purpose.
Listed companies must have a website providing information about the company and its management, and a dedicated IR section including a calendar of dates of events such as general assembly meetings and company disclosures.
The move to introduce regulations was clearly linked to the UAE’s upgrade to membership of the MSCI Emerging Markets Index, according to Toby Wilkinson, the head of education at the Middle East IR Society.
“Investors in emerging markets will look at UAE equities with a great deal of scrutiny, especially at their levels of disclosure, transparency and corporate governance,” he said. “You can be a stellar performing company, but if those three elements aren’t in place, you won’t get the ratings you’re after.”
Such lessons have increasingly been embraced by local boards, according to the head of Middle East equities at a large investment bank in Dubai, who declined to be named.
“Companies have got feedback from investors that your share price won’t do well if there’s a lack of transparency and corporate governance, and if you don’t have trained IR personnel on your staff,” he said. “If that doesn’t change then your stock won’t trade much, and it will essentially remain a retail stock that doesn’t attract the attention of big money.”
jeverington@thenational.ae
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