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Professor Alex Frino shares his findings on future prospects of UAE at UOWD Business Breakfast
Dubai: A noted international economist has said that Initial Public Offerings (IPOs) in the United Arab Emirates markets raise more capital than they would in the United States.
Professor Alex Frino, who is also the Deputy Vice-Chancellor of University of Wollongong, Australia, based his views on his research findings, while delivering a talk on “The UAE as a Global Financial Centre: New Research into its current performance and future prospects” as part of an exclusive Business Breakfast for business professionals organized by The University of Wollongong in Dubai (UOWD) recently.
More than 30 entrepreneurs attended the event during which Professor Frino discussed his study which examined the pricing of Initial Public Offerings on the Abu Dhabi Securities Exchange (ADX) and Dubai Financial Market (DFM) of stocks that would be too small to include in The Standard & Poor’s 500 (S&P500) but would be large enough to be included in the ADX General Index or DMF General Index.
Researchers examined these against a comparable sample of stocks listed on US markets, focusing on underpricing – a comparison of the issue price of stocks to their price on listing. They found underpricing was 19-30% lower in UAE markets. Professor Frino said this showed companies were able to raise more capital, all else being equal, by listing in the UAE.
“Underpricing is the discount on the issue price that’s given to induce investors to fully subscribe for all the shares in an IPO,” he said. “Wherever we look we find that listings of these kinds of companies in smaller markets require less underpricing, meaning companies can raise more capital on smaller bourses.”
The latest research rounds off a three-year research program looking at IPO potential in various markets vis-a-vis the world’s deepest and most liquid market, the US. The research investigated IPO performance in Australia, Hong Kong, Singapore and UEA markets, and, in all cases, underpricing was lower in the smaller markets.
“Even after controlling for differences among a large number of variables known to influence underpricing, including deal size and issue price setting mechanism, we found that underpricing is on average 19-30% lower in the UAE,” said Professor Frino. “Of all the markets we looked at, this was by far the highest difference, meaning companies that wouldn’t make the S&P500 cut-off should be seriously considering the UAE as a listing venue”, he added.
Professor Frino said the study supported the UAE’s potential to be a stronger financial hub.
“The US is still the marquee market for companies to list, but our research shows very significant benefits for listing in the UAE,” he said. “We suspect that the mass of institutional investor money targeting companies of this size in the UAE is greater than it is in the US and that’s a factor that private companies that are planning to list should take into account.”
The University of Wollongong is continuously engaged in high-quality research with outcomes that will benefit the region as well as globally and to have effective programs for research training.
Enquiries can be made to: info@uowdubai.ac.ae or contact 042 781 800.
About UOWD
The University of Wollongong in Dubai (UOWD) is one of the UAE's oldest and most prestigious universities. Established in 1993 by the University of Wollongong in Australia - currently ranked amongst the leading universities in the world – UOW in Dubai represents a pioneering Australian initiative in the Gulf region. The University has over 4,000 students and supports a network of over 8,500 alumni.
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© Press Release 2016
