Price drops test limits of market threshold

Regulation stipulates listing may be suspended if market value falls below level

Recent volumes have been weak on the Dubai Financial Market of late.
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The stock prices of four prominent listed UAE companies have dropped below 40 fils, raising the spectre of their shares being suspended. Deyaar Development, Union Properties, National Central Cooling (Tabreed) and RAK Properties closed below the key threshold yesterday. According to regulations established by the Emirates Securities and Commodities Authority (SCA), the agency has the right to suspend a company's shares once they fall below 40 fils (11 US cents).

SCA officials declined to comment yesterday on whether the agency intended to suspend the companies from trading. "The SCA regulation is there to protect shareholders and it is based on an assumption that if [a share] falls below 40 fils, the company is distressed and the regulator has the right to suspend the stock in the interest of its shareholders," said Ali Khan, the managing director of Arqaam Capital in Dubai.

Mr Khan and other analysts say it is likely that the SCA is allowing the stocks to continue trading because they remain fairly liquid and hold considerable assets. The SCA regulation, posted on the authority's website, stipulates that: "The board may suspend listing ? If the market value of the securities falls below 60 per cent of the nominal value." The nominal value of UAE shares is Dh1. All of the companies at risk of being delisted dropped beneath 40 fils for the first time within the past three weeks.

Mohammed al Qadi, the chief executive of RAK Properties, called it "a horrible situation" that several companies were under par value. "We as a management cannot do anything because it is the reaction of the market driving prices lower," Mr al Qadi said. He added that the company had not been contacted by the SCA. The SCA regulation was drafted a decade ago when officials could scarcely have imagined the sharp market correction of the past year. The agency could opt to adjust the rules to match market conditions, analysts said.

Officials from Deyaar, Union Properties and Tabreed declined to comment yesterday. In the meantime, analysts said investors seemed to be as affected by the low prices and trading volumes as the companies' performances. "It's clear that market sentiment is driving those prices down," said Rami Awwad, a senior executive at the Al Awael Securities brokerage based in Abu Dhabi. Mr Khan said to protect shareholders "the key is to keep the stock liquid" so they could buy and sell freely. However, the companies have seen trade volumes fall sharply.

Deyaar volume has decreased from a peak of 310 million shares traded in June last year to 27.2 million yesterday, although recently it has seen fewer than 10 million shares change hands most days. Tabreed volume is off from 40 million shares a year ago to less than one million and Union Properties volume is down from 150 million shares to 4.3 million shares. RAK Properties, which is the only one of the four traded on the Abu Dhabi Securities Exchange (ADX) rather than the Dubai Financial Market (DFM), is down from 300 million to 2.9 million. If the SCA did suspend the stocks, each entity would be required to hold an extraordinary general meeting for shareholders to decide the future of the company.

The stocks of the four companies are hardly the only ones under pressure in the UAE. The DFM General Index is down close to 20 per cent this year and the ADX General Index is off more than 10 per cent. Each of the four companies now trading below 40 fils is down at least 30 per cent this year with Tabreed off the most at 58 per cent. Deyaar has been particularly volatile of late, rising and falling as investor sentiment fluctuates on the timing of a recovery in the Dubai property market.

Even while the stock has steadily declined, it has experienced bouts of buying from traders who see it as offering attractive value. This article has been altered to reflect the fact that the Tabreed volume was off from 40m shares not 900m as previously stated.