Dubai Financial Market's stock surged 15 per cent yesterday following reports that advisers had been hired for a planned merger with the Abu Dhabi Securities Exchange.
Speculation over such a deal first surfaced in May 2010, but no progress has been made public since the initial announcements from both bourses.
The UAE has three stock exchanges: ADX, DFM, and Nasdaq Dubai, which has been incorporated into DFM.
Abu Dhabi Executive Council, the top decision-making body in the emirate, has hired JPMorgan Chase and First Gulf Bank to serve as Abu Dhabi's advisers, according to a Reuters report yesterday.
Investment Corporation of Dubai (ICD), which controls the emirate's two bourses, has reportedly appointed Citigroup.
ICD, JPMorgan, Citigroup and First Gulf Bank declined to comment on the matter. The banks are striving to conclude a deal by the end of the year.
Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai, this month appointed Essa Kazim, the DFM chief executive, as the governor of the Dubai International Financial Centre. Mr Kazim starts his new role in January. He declined to comment on the merger.
People with knowledge of the planned merger say the bidding for Abu Dhabi's advisory work began in August. JPMorgan and FGB were selected to advise on the deal. HSBC and National Bank of Abu Dhabi formed a separate consortium for the advisory contract.
On Tuesday NBAD circulated a report to clients in which it raised its profit forecast for DFM by 28.6 per cent to reflect the bourse’s increased trading volumes in the third quarter. Sanyalak Manibhandu, an NBAD analyst, has a buy rating on DFM shares, with a target price of Dh2.50 a share.
“When I put out the report [on Tuesday], I said I thought there was at least a 20 per cent upside, but today the shares have already risen about 15 per cent,” Mr Manibhandu said. “The last time news was active on the merger was in May and June,” he said.
On June 3, DFM shares rose 14 per cent, hitting their maximum daily trading limit, amid speculation about a potential merger with ADX.
“The UAE with two big exchanges would not be liquid as one national exchange,” Mr Manibhandu said. “Secondly, if the two exchanges were merged, there might be some savings. Aldar and Sorouh were a good example. From the perspective of a regulator and institutional investor, if they were to deal with one exchange, it’s easier than dealing with two.”
The markets have benefited from a trading bonanza over the past year amid renewed investor interest. The strong economic recovery and an uptick in merger-and-acquisition activity in blue-chip companies have bolstered trading.
The ADX General Index has risen more than 55.5 per cent this year, while the DFM General Index has shot up almost 82.4 per cent in the same period.