Essa Kazim, Chairman, Dubai Financial Market (DFM): Interview

Interview: Essa Kazim

What has been the impact of the MSCI upgrade of the UAE from frontier to emerging market status?

ESSA KAZIM: The upgrade will have a significant implication on the market in the long term, improving liquidity through inflows from emerging market funds. We have already noticed some funds that have never before been exposed to the DFM.

In 2015, despite slower market activity, due to unfavourable circumstances independent from the sound fundamentals of our economy, foreign investors’ share of market trading value increased in 2015 to 48.6%, compared to 43.8% a year earlier. Foreign investors own 16.7% of the market capitalisation of DFM-listed companies, equivalent to Dh51.5bn ($14bn), and the quantity of shares owned by them increased from 18.9% in 2014 to 21.3% in 2015. The total value of DFM-listed securities accessible by foreign investors amounted to Dh113.6bn ($30.8bn), equivalent to 39% of total market capitalisation.

Accordingly, even though foreign investors are already active players in our market, there is still a good amount of room for further participation from their side. Therefore, we are currently preparing for the next ambitious goal – to be upgraded to developed market status – with many rules and regulations being considered for inclusion and introduction.

How can indexes be made more representative of the UAE economy, and what are the prospects for more initial public offerings (IPOs)?

KAZIM: The DFM encourages private and family businesses, as well as government-related entities to go public and list. Our ultimate goal is to obtain the best representation of the national economy’s key sectors, by attracting companies from dynamic and pivotal industries. These include tourism, retail, health care and education. The DFM-listed companies have successfully raised Dh40bn ($10.9bn) through the market, and we actively collaborate with potential issuers, educating them on the vital role of capital markets. We want them to further understand the IPO regulatory environment, which has seen many constructive reforms recently, and to also prepare for corporate life post-IPO. We succeeded in accumulating a substantial pipeline of potential issuers, including new candidates as well as companies from the backlog of the past years. In 2014 several IPOs rolled into the market after a few years of drought. We hope to see further momentum in order to achieve better representation of the economy, as almost 70% of GDP is absent from the market, which is dominated by the financial and real estate sectors.

To what extent is the “eIPO” platform boosting listing activity, and what additional technological services are being created to improve the system?

KAZIM: The eIPO platform came as the DFM’s attempt to tackle various bottlenecks and hurdles that historically were associated with the implementation of IPOs. As part of our “Smart Borse” strategy, the platform supports both fixed and book-building pricing mechanisms – the absence of book building in the past drove companies to seek overseas listings. The platform has witnessed enormous turnout from investors in the UAE and beyond during the implementation of four IPOs: Marka, Emaar Malls Group, Amanat and Dubai Parks & Resorts, with an approximate total value of Dh10bn ($2.7bn). The creation of the eIPO platform provided a seamless and efficient solution for investors, issuers, receiving banks and the exchange. The platform also made the conclusion of a process that usually takes months achievable within a few days of the end of the IPO period.

We are regularly enhancing the eIPO platform and have recently signed a memorandum of understanding with the government. This was to enable investors to make payments of IPO subscriptions via the ePay Portal of Dubai Smart Government in the future.