How much is the growth in both conventional and Islamic government debt issuance set to encourage corporates to use debt instruments?
ABDULFATTAH SHARAF: On the back of lower global oil prices and a desire to diversify sources of funding, there has been an increase in regional sovereign debt market activity since 2014. In some cases, such as with Saudi Arabia, it was the first time the sovereign had accessed international bond markets. This activity was a boost for regional capital markets, which experienced important growth. As the size of the markets has expanded, so has the attention of international investors. This, in turn, has created the opportunity for more issuers to enter the markets. With sovereigns and larger corporations being increasingly active on the debt market, it is also driving an important cultural shift. Traditionally, in this part of the world, issuing debt was often associated with financial weakness; however, more companies now appreciate the role debt can play in building a more efficient capital structure, and the impact that can have on growth. This will encourage more corporations to look to the debt markets in the years ahead.
In what ways has the introduction of short-selling on UAE markets had a positive impact?
SHARAF: The introduction of short-selling in the UAE has had a number of benefits for investors and listed companies alike. Ultimately, short-selling enables markets to operate more efficiently, with enhanced liquidity, more effective price discovery and reduced volatility. It goes without saying that short-selling needs to be closely regulated to ensure it is used appropriately. Much credit should go to the UAE’s Securities and Commodities Authority for their approach of carefully introducing the practice. Another benefit is that the ability to short-sell equity may attract convertible arbitrage funds to the market, which can lead to more attractive terms for issuing convertible debt. This is a common practice, and I expect we will see more of it in the UAE.
How concerned should investors be with regard to liquidity levels in the equities market?
SHARAF: Liquidity is relatively healthy at the moment. While daily turnover remains below 2013-14 levels, when oil traded in excess of $100 per barrel, underlying liquidity is consistent with 2015 and 2016, and markets are performing effectively. The recent initial public offerings (IPOs) of ADNOC Distribution and Emaar Development demonstrated the strength of the market, with significant domestic and global investor demand.
What is your outlook for 2018 regarding IPOs, and why do you think businesses are reluctant to list?
SHARAF: There is no doubt that the success of the two aforementioned IPOs will give other companies the confidence to list. We have a large pipeline of companies looking to float, and some of these transactions are likely to be completed in 2018. Common concerns include market conditions, competing transactions and possible IPO valuations, along with the preparation time required for listing. However, given the recent rally and higher oil prices – and the impact this has had on regional confidence – as well the MSCI Emerging Market Index membership, we expect more listings to take place in the near future.
What impact has the MSCI Emerging Market Index upgrade had on the appeal of the UAE markets?
SHARAF: The UAE markets have long had strong appeal to international investors due to the attractiveness of listed companies and the strong rule of law in the UAE. However, the status upgrade has certainly had a beneficial impact by bringing in new investors and providing additional confidence. The MSCI upgrade has also been a key factor in making local markets more attractive to domestic companies looking to list. In recent years some companies made the decision to list in markets outside the region, such as in London, whereas now, local markets are just as appealing – if not, more so.
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