A second exchange board in Abu Dhabi creating new options for entities looking to list

The earliest listings in any new market are important for exchange authorities that want to attract more companies to the board. In the case of the Abu Dhabi Securities Exchange (ADX), the private joint-stock companies (PJSC) platform has two strong institutions to build from. Manazel Real Estate and The National Investor (TNI) were listed on ADX’s new market for PJSCs in November 2014, and each of them grew outwards from one of the emirate’s most important economic sectors. Manazel is a PJSC with issued capital of Dh2.5bn ($680.5m), valued at Dh1 ($0.27) per share and a foreign ownership limit of 49%. Established in 2006, it is one of the leading real estate companies in the UAE. TNI is another familiar brand in the UAE’s capital, with lines of business in asset management, investment banking and private equity.

Implications

ADX has long been providing PJSCs with services similar to those it grants the public companies on the main board, principally through its operation of the private companies register, by which the share ownership of PJSCs is tracked. The creation of the second market, therefore, represented a simple extension of the exchange’s existing operations. However, there are other, longer-term implications attached to this market innovation. The last decade has seen a steadily increasing number of Emiratis invest in PJSCs, to the extent that some companies number their shareholders in the thousands and could therefore be said to be public joint-stock companies in practise, if not in legal form. The increasing formalisation of this market is therefore welcome, with the new regulations enhancing fair price discovery and improving disclosure levels.

From the perspective of shareholders in the listed PJSCs, it is now much easier to trade in their name to achieve profits, rather than to invest for dividends only. For listed firms, the most obvious advantage is the easier route to financing that a listing permits, allowing larger small and medium-sized enterprises to embark on a growth phase that will transform them into bigger companies. For the exchange the creation of the second board represents not only a useful deepening of the market – a central feature in its effort to boost exchange liquidity – but also the establishment of a useful channel by which family businesses can be encouraged to join ADX first as PJSCs and then undergo the institutional upgrade necessary for them to become full-fledged public companies on the main board.

Growth Potential

A 2014 report issued by the Ministry of Economy has shown that the total number of PJSCs registered in the UAE stood at 145, with a total capital of Dh131.3bn ($35.7bn) between them. Around 57% of these companies are based in Abu Dhabi. Clearly, such a large number of potential listings in the domestic market means that there is ample room for growth in ADX’s second market. Moreover, early trading indicators on the PJSC platform have been encouraging. The two newly listed companies were recording around 50 trades per day in Q4 2015, a respectable level given the newness of the market and the small number of listings. While ADX can do much to encourage even more listings in 2016, for example through continuing its outreach efforts to PJSCs, prevailing market conditions will play a large part in the development of the market in the short term. More improvements are being added.

“There has been progress made in terms of developing the UAE’s capital markets, and the introduction of new financial instruments including derivatives and options would be another positive step forward in this,” Jassim Alseddiqi, CEO of Abu Dhabi Financial Group (ADFG), told OBG. In early 2016, ADFG announced that its capital markets arm, Integrated Capital PJSC, increased its stake in Bahrain-headquartered GFH Financial Group (GFH) to 10%. Integrated Capital is now the largest shareholder in GFH, a well-recognised financial group in the GCC region.