Are we witnessing the homecoming of UAE companies with overseas listings? And if so, will it mean an end to local companies floating on foreign stock markets?
Those two questions occur in light of the recent moves by two of the biggest Dubai companies – Damac and DP World (DPW) – to effectively end their flirtation with the London Stock Exchange (LSE).
DPW has cancelled its full equity listing on the LSE, effective in a few days time when DPW will trade exclusively on Nasdaq Dubai, while Damac changed its London listing in global depositary receipts (GDRs) into ordinary equity on the Dubai Financial Market, where it started trading this week.
It’s worth looking at the reasons why these two giants of the local scene went to London in the first place, and why they eventually decided there was no place like home after all.
DPW justified an LSE listing in 2011 on the grounds that exposure to a pool of liquidity such as London – many times bigger than that of Nasdaq Dubai (where it had been listed since 2007) – would attract high-quality international investors into the stock and, ultimately, get it a higher rating than if it were just traded in Dubai.
Over the three years or so it was on London, DPW certainly got a higher rating, with the share price gradually recovering after the financial crisis hit it, and everything else in Dubai, hard; but that was little to do with London, it turns out.
Investors were impressed instead by DPW fundamentals, with the exposure to improving world trade and the Dubai economy booming once more after the crisis of 2009.
In fact, London trading volumes never accounted for more than 3 per cent of the total, and recently dropped to less than 1 per cent. Investors found they had all the liquidity they needed in Dubai after all.
Basically, DPW made the wrong decision back in 2011 to go to London, and should be commended for its frankness in admitting that and correcting it.
Damac is a rather more complicated case. Back in 2013, Hussain Sajwani, the founder and chairman, wanted to realise some value for all his hard work in building Damac into one of the leading property developers in the region.
The stock exchange rules in the UAE at the time prevented him from selling down shares, and an offering on a local exchange would have forced him to float 55 per cent of Damac, which he, under the best advice, decided was too much.
So he headed to London instead, where the rules are more flexible. After much consideration, it appears Mr Sajwani decided a GDR listing would get him more value for less hassle, so that is what Damac did in December 2013. About 14 per cent eventually floated in London, giving the chairman an instant windfall of around US$370 million and control of a company worth $2.65 billion.
In the year since the GDRs listed, Damac has done very well in London. When it moved to DFM this week, it was worth about $3.8bn.
Still, Mr Sajwani and his advisers are obviously persuaded that DFM, for all the volatility of its retail-dominated trading culture, will deliver better long-term value than London. In fact, it is exactly that local retail element, which presumably has a better understanding of Damac’s value than GDR investors thousands of miles away, that is the main attraction of a DFM listing for Damac.
Two further points are worth making here.
First, if Mr Sajwani were faced with the choice of London or Dubai today, he would have much more flexibility. The UAE regulator has effectively changed the rules, by giving companies such as Emaar Malls and others approval to float much less than 55 per cent and sell down founders’ capital.
Why Emaar and others were allowed the exemption, while Damac was not back in 2013, has not been explained.
Second, there are two other UAE corporates, both in the medical sector – NMC Healthcare and Al Noor Hospitals – that also sold shares in London and have done very well out of the higher rating put on their equity.
Might they be tempted back to UAE markets in some form? I have no idea, but it would be a logical thing to consider.
fkane@thenational.ae
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