Ranking system designed to pave way for secondary IPO market

Dubai: The Mohammad Bin Rashid Establishment for Small and Medium Enterprises' latest initiative aims to pave the way for a secondary initial public offering market, Abdul Basit Al Janahi, CEO of Dubai SME, said.

SME 100, a ranking system of Dubai's top performing small and medium businesses, will help the government and other financial entities identify and develop local organisations' potential and prepare them for an IPO.

"In order to have an IPO we need to have good companies that justify the existence of a secondary market.

"For the companies that will list, they will need to learn to run their business in a different way," said Al Janahi.

According to Nasdaq, a minimum of 13 to 14 companies is needed in order to create a secondary IPO.

"This is one component of the gap that needs to be filled. I think there are a lot of SMEs out there that people would be interested to invest in. The beauty of SMEs is that the growth opportunity is much higher," Al Janahi said.

Corporate governance

Al Janahi emphasised the importance of corporate governance.

"If we are planning on taking some of the SMEs to the next level such as a secondary market we need to prepare these companies to adopt corporate governance," he said.

He added that too many companies were run like family businesses.

"Banks have a difficult time evaluating companies and giving them the right financial services. Having the right structure will help these businesses to grow," Al Janahi said.

Of the more than 1,000 applicants for SME 100 only 45 per cent had the correct structure in place.

Nasdaq and Dubai International Financial Centre are both working with Dubai SME, as well as eight major institutions including Citibank and HSBC.

Dubai SME 100 was launched in March, ranking top-performing small and medium enterprises for the first time.

This followed the first official definition of SMEs in 2009 which defines an SME as a registered firm with a turnover of up to Dh250 million and up to 250 staff.

"The ranking will help these SME's to see where they stand. It will encourage other SMEs to get inspired and improve their business models. We want to identify these people," Al Janahi said.

The 1,092 applications received have been narrowed down to 196.

Dubai SME will announce the short-list this month, which will then be narrowed down to the final 100.

Of those short-listed, 60 per cent are in the service industry, 13 per cent in manufacturing and 27 per cent in the trading industry.

The categories they are judged on include growth performance (40 per cent), financial soundness (10 per cent), innovation (25 per cent), human capital development (10 per cent), international orientation (10 per cent) and corporate excellence (5 per cent).

Following the initial ranking, the list is set to be updated every two years.

Small and medium enterprises make up 95 per cent of the total business population and employ 42 per cent of the Dubai workforce.

There are 70,000 SMEs registered with the Dubai Economic Department.

Growth opportunity