DUBAI - At least five big family-run companies in the UAE have held meetings with the chief executive of the Dubai Financial Market (DFM), the emirate's biggest bourse, over the possibility of listing shares on the exchange.
The disclosure by Essa Kazim, the chief executive of the DFM, comes as pressure builds among private equity groups to exit their investments through initial public offerings (IPOs) of shares on the same market.
The interest in listing shares on the DFM marks the first signs of life in the country's IPO market, which has been dormant for the past two years.
Companies have largely held back from going public because IPO valuations are based on current balance sheets, and financial results from the past year or two have suffered from the impact of the global financial crisis, Mr Kazim said yesterday.
"They have already made up their minds, strategically speaking," he said. "The only issue is timing. I wouldn't be surprised if we see a couple of successful listing examples and the herd mentality builds up."
The government has cut the minimum requirement of selling 55 per cent of a family company to the public to just 30 per cent, in a bid to encourage more family-held entities to list their shares.
But none have made the move since Damas, the jewellery group listed on the NASDAQ Dubai two years ago. That could change as lenders move away from the "name lending" that the region's major trading groups have tapped into for generations.
Name lending has come under increased scrutiny after banks across the Gulf were forced to make billions of dollars in provisions relating to Ahmad Hamad Al Gosaibi and Brothers and the Saad Group, two of Saudi Arabia's largest family-run conglomerates.
Share sales provide an alternative source of capital for family businesses that may be finding it harder to raise cash from banks.
Many private equity groups that bought stakes in Gulf companies during the boom years are looking to exit some of these commitments. But many companies are holding back on the expectation of better financial performances this year, which could allow them to raise more money from investors.
"Some have already indicated that 2011 would be a better year for listing, while some said by the end of this year," Mr Kazim said.
IPOs have slowed dramatically across the Gulf as companies wait for investor sentiment to improve. Only 12 companies in the region listed their shares last year, and only four companies have gone public so far this year, all of them in Saudi Arabia.
There were 46 listings in 2005, 48 in 2006 and 72 in 2007 when the IPO market peaked, according to Zawya data. The DFM has been among the worst-performing bourses for the last two years as the index in 2008 lost more than 70 per cent of its value and recovered only 10 per cent last year. So far this year, it is the only Gulf bourse in negative territory.
Mr Kazim blamed the performance on the exchange's heavy reliance on property and financial stocks, which together account for 70 per cent of market capitalisation and were the worst-affected sectors during the crisis.
"We have probably 30 per cent of the economy represented on the index, but the other 70 per cent is the core of Dubai's economy," he said.
"The trading sector contributes 35 per cent of the GDP and you don't see these firms listed."
Now the bourse is seeking to attract companies from sectors that are underrepresented in its listings but which are a mainstay of the emirate's economy, such as logistics, transport, retail, health care and hospitality.
"You need these companies to have a better gauge of the Dubai economy," Mr Kazim said.
But despite expectations of a local recovery in IPO activity, some analysts are sceptical about the likelihood of seeing family-run groups transforming themselves into publicly traded companies.
"There is a price for relinquishing control of businesses and if the price is not right, businesses will not be willing to list. At current valuation levels the market is not appealing for family businesses to list," said Yazan Abdeen, a fund manager at ING Investment Management in Dubai.
The DFM is awaiting final regulatory approval to complete its Dh445.1 million (US$121.1m) takeover of NASDAQ Dubai.
By Sarmad Khan
© The National 2010
