Pressure mounts to lift foreign ownership limits on UAE shares

A Deyaar building for lease in Business Bay in Dubai in 2012. The Dubai developer has become the latest company to consider opening up to outside buyers. Razan Alzayani / The National

Pressure is building to lift foreign ownership limits in the UAE.

The property developer Deyaar Development has become the latest company to consider opening up to outside buyers.

UAE stocks are expected to be incorporated into MSCI's emerging markets index in May – a move that is forecast to attract Dh1 billion in investments into listed companies. Last June the international index compiler upgraded the UAE's classification from frontier market to emerging market.

Deyaar’s board is due to meet tomorrow to discuss allowing foreigners to own company shares.

“A foreign ownership of 25 per cent is crucial to be included in the MSCI Emerging Market Index. Many institutional investors that use [the index] as a benchmark would start investing in those UAE names, if certain other conditions are also met,” said Jaap Meijer, the executive director for research at Arqaam Capital, a Dubai-based boutique investment bank.

Increasing the foreign ownership limit would allow companies to “further tap the international capital markets for equity capital,” said Oliver Schutzmann, the vice chairman of the Middle East Investor Relations Society (Meirs).

“At the end of the day a lot of listed companies want to attract international institutional investors because they tend to have deep pockets, take a longer-term view of company strategy and it is easier to build relationships with one large investor than lots of small retail investors.” Meirs “would not be in favour of removing foreign ownership restrictions altogether because it could open the floodgates to hostile takeovers from abroad,” Mr Schutzmann said.

Under UAE rules, most companies listed in Abu Dhabi and Dubai may choose to allow investors from outside the UAE or GCC to buy up to 49 per cent of their shares. However, many choose to set their foreign ownership limits at a lower level and some do not allow any foreign ownership at all.

In July 2012, the state-controlled telecoms company Etisalat said it was in talks with the Government about lifting a ban on foreign ownership of its stock. Shares of Etisalat remain accessible only to Emiratis.

In recent months more and more UAE companies have increased the number of shares they allow foreign investors to buy as they take advantage of growing demand from overseas.

In September, Mashreq raised its foreign ownership limit to 20 per cent from 0.9 per cent and the bank added it was already planning a second increase.

Abu Dhabi Islamic Bank said in November that it was working on a plan to give international investors access to its shares.

And in December, Dubai Islamic Bank approved a plan to lift the amount of the bank's shares that foreign investors can buy to 25 per cent from 15 per cent.

Meanwhile overseas investors have been snapping up the shares they are allowed to own. Foreign investors currently hold 48.9 per cent of shares in the Dubai-listed logistics company Aramex. Similarly they own 43.7 per cent of shares in the construction firm Arabtec.

They also own 18.93 per cent of RAK Bank, which currently allows a 20 per cent foreign ownership, as well as 13.73 per cent of Dubai Islamic Bank, which allows a 15 per cent foreign ownership.

Union Properties, which sets its foreign ownership limit at 15 per cent, is currently 14.71 per cent owned from outside the Emirates.

This month the Aramex chief executive Hussein Hachem called for the limits on foreign ownership of its shares to be amended above the 49 per cent limit, citing strong global demand for its equity from abroad.

“There is a queue for our stock from global investors. Having the foreign ownership limits is a handicap for us, because we are a global company. More liquidity would be very positive for us,” Mr Hachem said.

“If UAE markets want to compete on the international scene, removing foreign ownership limit for non-strategic industries is a must,” said Fathi Ben Grira, the chief executive of Menacorp, an Abu Dhabi investment company.

Deyaar said in its filing yesterday that it would also consider a restructuring plan, without further elaboration. That sent the stock down 3.79 per cent.