Dubai's initial public offering of 10 state-owned companies will be a catalyst for growth as the emirate looks to double the size of its capital market to Dh3 trillion ($817 billion) and attract foreign investment, analysts say.
The move to list government-related entities will broaden sectors of the economy represented on the Dubai Financial Market, increase liquidity, which will in turn boost investor confidence.
“Dubai’s proposed listing of 10 state-owned companies can be a positive catalyst for the DFM,” said Tarek Fadlallah, chief executive of Nomura Asset Management in the Middle East.
Dubai Water and Electricity Authority (Dewa), the government-owned utility company, will be the first government entity to IPO on the DFM in the “coming months”, Sheikh Maktoum bin Mohammed, Deputy Prime Minister and Minister of Finance said on Twitter on Tuesday.
The Dewa IPO plans come a day after Sheikh Maktoum announced Dubai's intention to list 10 companies as well as set up a Dh2bn market maker fund to encourage more private companies to list from sectors such as energy, logistics and retail to broaden the emirate’s bourse.
The DFM exchange is currently dominated by financial services and real estate companies.
“The strategy of the UAE government overall, especially after the pandemic, was to expand the capital markets and make them reflect the actual GDP,” said Ali El Adou, head of asset management at Dubai-based Daman Investments.
“This is the most important element, as a healthy stock market reflects a healthy economy. This is what is key here in what the [Dubai] government is trying to do.”
The UAE has bounced back strongly from the pandemic that tipped the global economy into its deepest recession since the 1930s. The Arab world’s second-largest economy — which is expected to expand 2.1 per cent this year, central bank data shows — is improving financial and commercial sector regulations as part of its drive to boost foreign investment.
Dubai, the commercial and tourism hub of the Middle East, has also rebounded from the global slowdown that disrupted the travel and tourism sectors — two of the main contributors to the emirate's economy.
The mass inoculation drive, government support measures and the hosting of the six-month Expo 2020 trade fair is reaping dividends for the emirate’s economy. Dubai's economy is expected to grow 3.1 per cent this year, government data shows.
By broadening the representation of economic sectors on the DFM, the government will “narrow” the “deviation between the market and the economy”, said Mazen Al Sudairi, head of research at Al Rajhi Capital in Riyadh.
“Adding the new businesses” is a step in the right direction, which has happened in Saudi Arabia with listings of Acwa Power and Solutions by STC, the internet arm of Saudi Telecom, he said.
“This is a global trend; it’s happening everywhere,” Mr Al Sudairi said.
IPOs in the six-member economic bloc of the GCC have picked up pace as the region recovers from the economic slowdown and government and private sector companies tap capital markets for funds.
Acwa Power, which raised $1.2bn from investors through its public float, and Solutions by STC are among this year's prominent listings on Saudi Arabia's Tadawul, the Arab world’s biggest bourse.
In Abu Dhabi, the emirate's bourse has seen record trading performance this year, with its market capitalisation rising beyond Dh1.48tn. It is among the best-performing global exchanges, with the benchmark rising more than 51 per cent since the beginning of the year.
The ADX has also attracted high-profile listings in the past few months, including the public float of Al Yah Satellite Communications and Adnoc Drilling. Abu Dhabi Ports Company, which operates ports, industrial cities and free zones in Abu Dhabi, is also expected to list before the end of this year.
Mr Adou expects at least one IPO on the Dubai bourse this year and more state-owned entities to list in the first six months of 2022.
“What’s interesting about the UAE is the execution [of the plan] and this is what the UAE is known for,” he said.
“Towards the end of the year, you might see an IPO coming [on the DFM], at least one, and in the next year, most of the [IPO] pipeline, a very good portion of the pipeline … by the first half,” he added.
The proposed listings will also help the government unlock value in the state-owned companies and open up more channels for foreign investors, Mr Adou and Mr Al Sudairi said.
“We are part of the emerging market indexes globally and when you list such entities, you will have additional flows from institutional investors,” Mr Adou said.
“This will help in increasing exposure of international investors to the market”, bringing the market on the radar of both passive and active portfolio managers, he added.
On Monday, Sheikh Maktoum said the emirate will also set up a Dh1bn fund to attract more technology companies to list on the DFM, which will encourage more innovation.
“The quality of an index depends on the quality of the companies listed and the impact will depend on which companies are listed,” said Scott Livermore, chief economist at Oxford Economics Middle East.
“The key will be to make sure that the index has a sustained improvement in performance.”
Dubai’s Securities and Exchange Higher Committee has also approved the formation of Dubai Markets Supervisory Committee and specialised courts for capital markets, Dubai Media Office said on Monday.
The committee will study a regulatory framework to attract new digital assets to operate from Dubai and will support environmental, social and governance factors as well as reporting on operations.