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Wednesday, April 06, 2022

Arabian Business - Trailblazing IPOs line up to take the home run in the UAE

By Century Financial in Century in News

Arabian Business - Trailblazing IPOs line up to...
Vijay Valecha, Special to Arabian Business April 4, 2022

The UAE markets have witnessed a stellar year and are at par to the regional equity markets. Even though there was a stall in the economy, the prompt response of the leadership by arranging mass vaccination drives, sanitisation campaigns, and restricting travel enabled the UAE to strike back with full force.

In 2021, UAE companies posted excellent results, reinforcing the notion that the country’s stocks represent some of the best re-opening investments in the world. In 2021, the DFM rose by almost 28 percent, while ADX had exceptional gains of 68 percent. What was brilliant was the significant jump in profits of listed companies, which was much more than the rise in revenue.

This shows that companies had sharply reduced costs while improving productivity, which was excellent news for investors. In 2022, UAE is likely to see another year of solid growth.

Expo 2020 set the stage

Twenty-three million people attended Expo 2020 during its six-month run. In addition, the platform was remarkably used to facilitate many global summits and conferences presided over by world leaders. As a result of the event, the national economy experienced a revival and recovery across many sectors, including tourism, business, and travel.

By hosting this global exposition, the UAE offered the world access to in-depth knowledge of the UAE’s history, civilisation, and culture. It has also strengthened the UAE’s international economic and cultural position, ranking first regionally and 15th internationally on the Global Soft Power Index 2022.

Liberalised policies breaking glass ceilings

Apart from the longer-term visas introduced in 2021, the federal institutions launched green visas and freelance visas exclusive to employment status in the UAE. Additionally, the country switched to a Saturday-Sunday weekend to align with the global economy better.

Furthermore, UAE announced the establishment of a 9 percent corporate tax rate, in line with other developed countries, and is the lowest corporate tax imposed compared to Gulf countries (excluding Bahrain, which does not levy such a tax). As a result of the regime, the UAE has addressed the challenges connected to the digitalisation of the global economy.

IPOs to take the homerun

As Abu Dhabi Securities Exchange strives to reach a market valuation of Dh3 trillion ($816.7 billion), it could list 13 additional securities this year. The new listings will include four companies from outside the UAE, while others will be government and family companies from within the country.

The Abu Dhabi Securities Exchange’s market liquidity shot up five-fold in 2021 amid an intense IPO boom when the exchange witnessed nine IPOs. ADX’s trade value increased 407 percent from Dh145 billion in 2020 to Dh739 billion in 2021 due to greater domestic and international investment levels. Local investors accounted for 70 percent of the traded value, while foreign institutional investors accounted for 30 percent.

The spell of the upcoming 13 IPOs will make the region more attractive to foreign investors, as it has survived the Covid-19 crisis and is now enjoying the benefit of higher oil prices and output. The emirate is strategising the pace of the robust growth of the local stock exchange with stellar offerings in the pipeline.

The Dubai Financial Markets also plan to list as many as ten state-owned entities this year, with road toll system Salik and business park operator TECOM labeled as possible next candidates. Businesses within Emirates Group, including Dnata and loyalty program Skywards and Dubai airport’s Duty-Free, have also been rumored amongst those being considered for public offer.

The decision to go public comes as Dubai seeks to restore interest in its capital markets, which have remained tepid for sometime. Neighboring bourses in Abu Dhabi has seen extensive listings, increasing foreign ownership, and growing retail investor participation through the Covid-19 recovery. The growth of DFM is long due, and the listing of DEWA will open doors to a flurry of IPO on the exchange.

On a national level, the UAE has now permitted cooperative societies in the country to list shares locally as part of plans to deepen its capital markets. The growth in local financial markets is long due, and the government is exploring several options to attract more retail investors.

The decision to allow cooperative listings also comes in the wake of attracting investors within and beyond the country’s borders to the local bourses. The increased participation improves Investor confidence in stocks. This then leads to more buying activity, which can also help push prices higher. In addition, the rise in activity will spur liquidity, which improves trading efficiency and better service issuers and investors in their markets.

The country aims to improve the regulatory environment for the cooperative sector and enhance its competitiveness in line with state trends. The listings will initially target local investors as they are more aware of the local cooperatives established in the country. However, the increased cash flow will eventually have a domino effect on even the international investors willing to tap into the UAE markets.

From a year of revival to a year of distinction

2021 was a year of recovery, while 2022 will be an expansionary year. Due to Expo 2020, UAE’s economic growth has been bolstered by increased tourist traffic, lavish retail spending, and significant real estate investments. UAE is pursuing a Trojan Horse move to invest in the financial markets and announce a flurry of IPOs to establish itself as a leader among other Gulf countries. UAE is ideally prepared to take advantage of the available

opportunities to end 2022 on a high note despite the pandemic’s many ups and downs.

Arabian Business