As the country's first initial public offering (IPO) in almost two years approaches, investors will be watching whether new shares breathe life back into the region's stagnant markets.
Confidence in exchanges has dwindled in recent weeks, with sharp volatility and low volumes.
Axiom Telecom is expected to offer its shares on about December 9. The mobile phone retailer, based in Dubai, set a price range of 80 US cents to $1.15 for the sale of as much as 35 per cent of its shares but only to institutional investors. The exclusion of retail investors to the listing is, however, problematic to some.
"There is no money left on the table [for retail investors] to play around with … the free flow is cut off," said Irfan Chaudhry, the chief investment strategist at Emirates NBD. Retail investors typically buy and sell small amounts of a stock creating the liquidity and interest needed to draw in long-term institutional investors.
The global average share price performance for IPOs last year shows that three months after listing, the price of a stock rose by about 15 per cent. Nawras, the Omani mobile phone company controlled by Qatar Telecom, experienced just a 3 per cent gain in its share price three months after its IPO, as retail buyers took up only 38.5 per cent of shares, despite the firm reserving almost 70 per cent of shares for those investors.
The Dubai Financial Market General Index closed 1.2 per cent down on the week to 1,682.23 points and the Abu Dhabi Securities Exchange General Index rose 0.5 per cent during the week to end on 2,756.89 points. The ADIB Islamic Index on MSCI UAE gained 0.09 per cent to 2705.5 points and the MSCI Frontier Market Index was down 1.2 per cent on the week to 578.00 points.
The volume of shares traded in Dubai and Abu Dhabi is currently less than half what it was a year ago.
Dr Nasser Saidi, the chief economist at the Dubai International Finance Centre, said new offerings will help reach untapped liquidity.
"An IPO build-up is happening now. We knew a number of companies that were planning to list before the crisis in 2008 and early 2009 but the market conditions didn't allow them," he said, adding that higher oil prices and lower interest rates had brought companies back to market.
"There's a new mood in the capital markets [and] a cloud that has been hanging over the market has lifted," said Dr Saidi, adding market sentiment had improved "substantially".
But some say now is not the time to launch an IPO. Ameed Kanaan, the general manager at Al Jazeera Financial Services, said, "Before we go down the IPO route we have to be fully covered [in our markets]. It doesn't make sense to launch IPOs on a sick market because the company will become sick too."
An IPO by Wataniya, a mobile telecommunications operator in the Palestinian Territories, is also expected to close this week.
There are at least half a dozen companies considering a flotation in the UAE next year covering a variety of sectors, Dr Saidi said, although he did not name any. Planned IPOs already announced include Kuwait Energy Company, an oil and gas company that operates in the Middle East and eastern Europe. It plans to go public in the next nine months. Emirates District Cooling, a provider of central air conditioning based in Dubai, may also offer shares by the end of next year.
The Dubai and Abu Dhabi exchanges have increased 15 per cent and 12 per cent, respectively, since August.
An influx of IPOs into the UAE would open the market up to international investors and, in turn, strengthen the secondary market for retail investors, which make up about 60 per cent of traders and therefore the bulk of volume on the local bourses.
"With an IPO culture developing, the market will get bigger and therefore less volatile," said Mark McFarland, an emerging markets analyst at Emirates NBD.
"The whole market becomes more appealing."
