Merger of Dubai stock exchanges too vital to ignore

It's that time of year when projects are shelved in this part of the world. The summer is with us in full intensity, people are leaving for holidays and the holy month of Ramadan approaches. All are disincentives for implementing ambitious strategies. We've seen it in a number of areas recently. The great wave of initial public offerings (IPOs) forecast for the first half of the year has not materialised and, if it does happen at all, will have to wait until the autumn.

That is as much to do with the state of global stock markets as it is local climatic considerations, but it's part of a trend: don't rush into it now; take a break and think again later in the year. We also saw it from DP World just a couple of days ago. The ports operator, one of Dubai's most valuable assets, postponed its planned London listing that had been pencilled in for this autumn and that might have been used as the opportunity to raise cash for its owner, Dubai World.

It has now been postponed, with executives citing another delay as the reason: the yet-to-be consummated union of the Dubai Financial Market (DFM) and the NASDAQ Dubai exchanges. The DFM and NASDAQ announced last December they would merge in an effort to bring greater liquidity to the region's financial markets. In particular, they wanted to inject some life into NASDAQ Dubai, which has suffered since its inception (as the Dubai International Financial Exchange) from lack of business. Try as hard as it could, the exchange failed to attract big international stocks to the region.

The most recent NASDAQ Dubai newsletter made great play of the fact that the value of shares traded had risen by 65 per cent in the first five months of this year, compared with the same period last year. With global markets everywhere depressed, it looked a creditable performance. But it was entirely down to the rise of DP World shares, which had gone up by about the same amount in the period, largely on the plans for the London listing.

There is a circularity here that financial experts in Dubai cannot fail to have noticed: DP World is the only seriously traded stock on NASDAQ Dubai; it wants to increase liquidity by also listing in London; its plans to do so have been placed on hold by the delayed marriage of NASDAQ Dubai and the DFM; hence values drop on NASDAQ Dubai. There is only one way to break this spiral and that is to push through the NASDAQ Dubai-DFM link-up.

The next crucial step in this process is imminent. On July 11 the outsourcing agreement between NASDAQ Dubai and the DFM becomes operational, meaning NASDAQ Dubai will use the DFM's X-Stream platform. This process has been delayed but there was some indignation on the part of NASDAQ Dubai officials yesterday on DP World's claim that it had been put off three times. No, it has been delayed only once, they said, and it is such a crucial part of the merger process that it has to be correctly introduced.

DP World, for its part, wants the London listing to be a success. It is a vital part of the company's long-term strategy that it has to work from day one, and DP World saw issues of "fungibility". Good word that, with a variety of different interpretations. In this context, it means investors in London and Dubai should be able to trade DP World shares on an equal basis, share for share in each location, in dollars. Until the NASDAQ Dubai-DFM platform is up and running, there can be no certain guarantee of fungibility, DP World argues.

NASDAQ Dubai points out, however, that fungibility already exists with at least two of the stocks it trades: Netsol (traded in New York and Dubai); and Unigold (traded in Toronto and Dubai). Perhaps, but neither stock has the volume throughput of DP World, so they cannot really be used as precedents. It doesn't really do much good to get into a blame game here. DP World, as a well-run public company (even if its 77 per cent owner is ultimately the Government of Dubai) has every right to expect the best possible market conditions.

NASDAQ Dubai, in turn, must ensure the common trading platform is ready and would be foolish to rush into a plan just to accommodate DP World. Talks between the two to get it right are regular and ongoing, NASDAQ Dubai assures. There are other measures still to be implemented before the common trading platform can come into use. The regulator, in this case the Dubai Financial Services Authority (DFSA), must sign off on the plan with a final letter of no objection, but as the DFSA has already given it approval in principle this should be no problem.

So July 11 is a crucial date for the future of financial markets in the UAE. There can be no further delays on this issue, even if it means spending the summer fixing the inevitable teething problems. It will be a long, hot summer for many executives at NASDAQ Dubai. fkane@thenational.ae