Business | Investment

'We have sound market infrastructure'

DIFC marks its fifth year with a burning resolve to be counted among the world's top financial hubs

  • By Babu Das Augustine, Deputy Business Editor, Gulf News
  • Published: 00:00 November 9, 2009
  • Gulf News

Fast start
  • Image Credit: Ahmed Ramzan, Gulf News
  • The Dubai International Financial Centre has gone from strength to strength since its launch in 2004, attracting 20 of the world's top 25 banks and six of the top ten asset managers.

Dubai: The Dubai International Financial Centre (DIFC) is one of the world's fastest-growing financial centres, primarily serving the vast region between Western Europe and East Asia.

Its achievments since its launch in 2004 have helped Dubai reinforce its status as one of the key challengers to the world's top-ranked financial centres. Going forward, it aims to be seen in the same league as New York, London and Hong Kong.

During the last five years, the DIFC has attracted high-calibre firms from around the globe as well as the region. It currently has 869 companies registered within its jurisdiction with new registrations growing at a compounded annual rate of 127 per cent during the last five years.

The DIFC district currently boasts more than five million square feet of office and residential space, with more than 1,400 professionals representing 123 nationalities, taking its success story forward.

In June 2006 His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, appointed Dr Omar Bin Sulaiman as governor of the DIFC.

With the DIFC celebrating its fifth anniversary, Dr Sulaiman spoke to Gulf News in an exclusive interview about the DIFC's future goals and challenges

 

Gulf News: Five years is not a very long period in the history of a financial centre aspiring to make a global impression and to that extent it will be too early to assess its achievements and compare it with other established centres around the world such as London, New York or Hong Kong.

However, how do you realistically evaluate the progress of the DIFC during the past five years in terms of its original targets and objectives?

Dr Omar Bin Sulaiman: Guided by the vision and leadership of His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, DIFC has progressed considerably towards realising its long-term objective of becoming a leading global financial centre.

DIFC is a unique financial centre success story because it was able to create an industry ecosystem and a large critical mass of financial institutions virtually from scratch in the short space of five years.

DIFC's industry cluster has grown rapidly since inception. Since 2004, the number of registered companies has grown at a compound annual growth rate of 127 per cent.

Institutions based in DIFC include the who's who of the world's top banks and credit providers, several of which have chosen the financial district as the base for their regional headquarters.

Over 850 companies have registered in the DIFC and 1,400 professionals currently work in the financial district.

 

One of the objectives of DIFC was to attract global financial institutions to the region and develop capital markets and help regional firms to tap into the oil wealth of the region. How far has DIFC succeeded in these efforts?

DIFC has been highly successful in attracting global institutions. Today, as many as 20 of the world's top 25 banks and six of the world's ten largest asset managers have established a presence in DIFC.

DIFC's business community has companies from across the world: 35 per cent of regulated firms are from the Middle East; 22 per cent from Europe; 19 per cent from the UK; 15 per cent from the US; and 7 per cent from Asia.

Building a very sound capital market infrastructure to help attract regional liquidity back into the region was one of DIFC's key founding objectives. As part of this objective, DIFC helped develop a world-class financial exchange, which last year was rebranded Nasdaq Dubai.

The creation of this capital market infrastructure has contributed to increasing the appetite for initial public offerings. At the same time, DIFC has developed pathbreaking legislation to enable the wealth management sector to flourish and grow.

 

There have been huge expectations of DIFX (now Nasdaq Dubai) that a large 
number of companies from the Middle East and South Asia would come to Dubai to list their shares.

But that is yet to happen, what do you think is the reason for the reluctance of companies to come here to raise capital? Going forward, what are your expectations?

In the last few years, Nasdaq Dubai has broadened and deepened its activities to become a centre of capital markets development in the region. Most of the world's leading investment banks are members of Nasdaq Dubai in addition to many UAE brokerages.

The exchange currently lists shares, equity derivatives, exchange-traded commodities, structured products, Sukuk (Islamic bonds) and conventional bonds. Nasdaq Dubai is the only exchange in the UAE that lists equity derivatives.

Nasdaq Dubai offers many advantages to companies seeking to list IPOs such as the ability to float shares at their market value, through bookbuilding, and to list as little as 25 per cent of a company.

In 2008, Nasdaq Dubai became the GCC's second largest market for IPOs by value after the Tadawul in Saudi Arabia. I believe that as investor confidence returns, Nasdaq Dubai will see increased activity.

 

How far has the global financial crisis impacted DIFC's growth plans? Most global financial institutions impacted by the crisis are going through restructuring and are cutting down on their global ambitions. Has this affected the growth plans of DIFC?

The global financial crisis has had a minimal impact on DIFC. Instead, it has opened up a whole host of new opportunities for DIFC to become even more competitive than it has been so far.

The DIFC value proposition continues to attract banks and financial institutions from the region and internationally. DIFC will benefit from the continued strong growth prospects of the region to build its markets and institutions.

Over the next decade, as developed markets work on various issues related to government intervention, taxation and regulatory change, there is a historic opportunity for emerging markets and DIFC to take centre stage and complement, if not replace, the role so far played by major financial centres.

 

Creation of global standards in governance in the region had been one of the objectives of DIFC when it was established. How do you assess your success on this count?

Raising regulatory standards has been a key priority for DIFC. DIFC's independent regulator, the DFSA has established a credible and globally acclaimed track record of regulation.

The DFSA's standards and implementation of international best practices received a highly positive assessment from the International Monetary Fund (IMF) and World Bank, in their Financial System Stability Assessment Programme (FSAP) report on the UAE for the year 2007.

These high standards have earned it a global reputation as an efficient, modern and independent regulator and its presence has given companies the confidence that they have a secure platform for their business.

 

There is a general feeling that the regulatory standards of DFSA are far too high by regional standards and that is preventing many regional firms, especially family-run businesses, from accessing DIFC and its institutions. Your take?

DIFC's regulations have created a highly conducive platform for wealthy families to set up holding companies at DIFC to manage private family wealth and family structures anywhere in the world.
 
These regulations offer distinct benefits to Single Family Offices (SFOs) as they exclude them from many of the regulatory constraints placed on conventional organisations located at DIFC.

DIFC's regulations, be it for family offices or for any other sector, strive to provide the right balance between ease and efficiency of operations on the one hand and the need to promote high standards of corporate governance and transparency.

 

Post-global financial crisis, regional governments, government related entities and private sector firms are seriously discussing the need for creation of a long-term debt capital market in the region.

Apart from a slew of sovereign debt issues, the region is just about to start seeing a number of corporate bond issues. What will be DIFC's role in helping to create a primary market and an active secondary market for corporate debt?

DIFC is closely working with the Multilateral Investment Guarantee Agency (MIGA), a member of the World Bank Group, to develop the region's bond and Sukuk market. By providing the means for mitigating political risks, we expect this partnership also to stimulate greater foreign investment in the region.

Nasdaq Dubai offers an excellent platform for trading corporate bonds and Sukuk. Just a few days ago, the International Finance Corp., the investment arm of the World Bank listed its first-ever Sukuk bond with the Nasdaq Dubai.

The IFC's $100 million (Dh367 million) Sukuk is the first to be issued by a non-Islamic financial institution in the GCC region for term funding.

Nasdaq Dubai is already the world's largest exchange for Sukuk by listed value, with 21 listed Sukuk valued at $16.7 billion.

As part of supporting the growth of the debt market, DIFC has set up a Working Group on Debt Market Development, which has created a roadmap for the development of this vital sector.

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