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GCC chief calls for IPO restrictions

The Secretary General of the GCC, His Excellency Abdul Rahman Al Attiyah, has said that new companies should not be allowed to launch initial public offerings (IPOs), in order to stabilise bourses across the region.

The Secretary General of the GCC, His Excellency Abdul Rahman Al Attiyah, has said that new companies should not be allowed to launch initial public offerings (IPOs), in order to stabilise bourses across the region.

In an interview with a London-based Arabic newspaper, he recommended that new companies should be prevented from listing on the stock exchange until they had been operating for at least two years.

He also called for listings to be carried out in a gradual manner, and not en masse — a proceedure designed to ensure that investments stay within the markets. In 2004 and 2005, Gulf IPOs were on average oversubscribed by 70 times. “I call upon the governments in the region to intervene [to stabilise the regions’ stock markets],” he said.

The move comes after a 25% drop in Gulf stock markets in the last year, prompted, analysts say, by over-valuations of listed firms. In the short term, Al Attiyah said that preventing new companies from floating primary offers would ensure a quick recovery of the stock exchanges. He also called for globally respected financial experts to be hired by local bourses, both to aid everyday operations, and also boost investor confidence.

UAE authorities are also currently considering new regulations designed to fix a level for maximum allotments in IPO subscriptions. This should enable the government to curb abuses by large investors and some banks, and also allow small and medium investors to benefit more from public share issues.

Under the existing legislation, there is no maximum allotment, meaning that large investors could conceivably subscribe for the complete IPO size. The governor of the UAE Central Bank, Sultan Nasser Al Suweidi, last week called for a subscription limit, in order to curb rocketing oversubscription rates. “Companies must set a limit for subscriptions in public offerings so that the small investor gets an equal chance and IPOs do not get heavily oversubscribed,” he said.

The Emirates Securities and Commodities Authority (ESCA) has also taken steps towards ensuring a swift refund of surplus IPO subscriptions, in order to ease liquidity shortages in the IPO-mad market.

Just last week, investment bank EFG-Hermes revealed that the public share sale of Du, the Emirates’ second telecoms operator, was oversubscribed by 167 times. Total applications topped US$109 billion, easily the largest amount pledged in the history of IPOs in the UAE. More than 225,000 investors applied for shares in the new venture.

It has since been announced that Du will refund IPO oversubscriptions from 3 April, with the stock expected to be listed on the Dubai Financial Market on 13 April. Analysts say the refunds should provide a boost to flagging stock markets.

At a meeting with stock market executives and the UAE Central Bank, Shaikha Lubna Al Qasimi, the Minister of Economy and Board Chairperson of ESCA, announced a raft of other measures to streamline the burgeoning IPO market.

Such has been the popularity of public offering schemes, stock market listings have even been targeted by fraudsters looking to cash in on foreign investors’ eagerness to claim a slice of the action. The Ras Al Khaimah Public Prosecution body last week began interrogating 12 suspects arrested for selling UAE passports to expatriates, who sought to subscribe to an IPO that was open only to UAE nationals. The gang is alleged to have made millions of dollars through the scam operation.

Meanwhile, in response to the dangerous lack of liquidity in the already weakened stock market, the UAE’s Ministry of Economy and Planning requested that Dubai Islamic Bank (DIB) postpone last week’s planned US$820 million rights issue. DIB will issue a new timetable in consultation with the ministry.

“You are kindly requested to adjourn the date set for inviting shareholders to subscribe in the increased share capital, with the new date to be fixed after consultation with and obtaining the approval of the Ministry,” said the ministry, according to a statement from DIB.

“Therefore, you are kindly advised that the date set for the start of subscription in the share capital increase set for Monday [March 20] has been adjourned to another date to be announced in the due course of time,” the statement continued.

The move comes as concerns have been raised over the economic impact of falls in GCC stock markets. The Dubai Financial Market, on which Du listed, has lost half its value since its record high last year, while exchanges in Kuwait, Saudi Arabia and Egypt have also been hit.

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