Reuters/Dubai

Jeff Singer: IPOs will need to show there is a retail interest in their offering

Nasdaq Dubai sought to boost investor interest and liquidity in its market yesterday by obliging future listings to have a broader investor base and lowering the bar on the size of company it will allow to list.

New IPOs will need at least 400 individual or institutional shareholders or reserve at least 10% of the issue for retail investors. There are currently no minimum requirements.

“The majority of companies listed on (UAE) exchanges are private placements, with 10 to 20 shareholders and daily liquidity close to zero. That is not really a market,” Nasdaq Dubai chief executive Jeff Singer told reporters in Dubai. “IPOs will need to show there is a retail interest in their offering.”

In addition, Nasdaq Dubai-listed companies—which include one of Dubai’s flagship firms, DP World-will now need to report results on a quarterly basis rather half-yearly.

Singer said these proposals may be amended after a consultation period with market players, but added he expects the new rules to be introduced during the second-quarter.

To IPO on Nasdaq Dubai, firms must list at least 25% of their shares. Companies will now be able to offer up to half their free float as preferential shares.

No IPOs have successfully listed in the UAE for more than two years, and Singer said the above changes would help woo local businesses and other small-to-medium enterprises.

Minimum market cap rules will also be amended to make it easier to list.

“While improvements to the regulatory framework are very welcome, the main obstacle to an improved IPO market is the low valuations in the UAE,” said Fahd Iqbal, EFG Hermes strategist. “Equity holders do not seem to be willing to sell to the market at prevailing low multiples.”

Nasdaq Dubai is majority-owned by Dubai Financial Market. Trading on DFM and Abu Dhabi Securities Exchange slumped to six-year lows in 2010, while the DFM index is down more than 70% from a January 2008 high.

Nasdaq Dubai has also struggled with low trading. It has less then 20 listed companies, only one of which—DP World—trades on a daily basis.

Yet the long-awaited introduction of short selling on domestic bourses would boost liquidity, Singer said.

“At the moment, you cannot make money if the market is going down, so if the market is bearish or sideways, the money stays out and it is tough to get people to come back in until sentiment changes,” said Singer.

Short selling is already permitted on Nasdaq Dubai, although it only represents a small proportion of trading.

In July, Nasdaq Dubai outsourced its trading operations to DFM, while Dubai and Abu Dhabi governments have held talks about merging DFM and ADX.

“A merger would be good news,” said Singer. “Exchanges are scale businesses. I believe we should have a unified exchange in the UAE. The obstacles are political and it is up to the politicians to work things out.”

In December, UAE handset retailer Axiom Telecom cancelled plans to list on Nasdaq Dubai, citing market conditions and liquidity concerns.

“Axiom not listing was unfortunate, but not unusual,” said Singer. “Worldwide, there were a lot of listings pulled in the fourth quarter.”