Completing the formula for Dubai's success

By putting all the ingredients in place to entice companies with international aspirations, DIFX can re-energise its launch, Dr Henry Azzam tells Financial Review

How would you describe DIFX's performance relative to target so far? Is there any sense of disappointment regarding total listings?
We are building an exchange from zero.We start by building the infrastructure, we put in place the technology, the programmes, the systems, the clearing house and also the things that will give it confidence.

We can definitely today say we have everything in place for the exchange to take off. Now, of course we would have liked more listings. It is coming slowly and gradually. It is a matter of having more liquidity in the exchange to attract additional listings.

But already we have quite a few, with several in the pipeline. We are looking forward to a busy year ahead. And we believe that we are providing something to the marketplace, local in the region, that is well-needed.

We have 23 listed securities, of which two are IPOs, five other equity listings, three conventional bonds and four Sukuks, which make the exchange the largest in the region for Sukuks, with a total of $7.3 billion worth.

Why have companies been hesitant? What factors are involved for their consideration?
This is an exchange regulated to international standards. Companies who want to be listed in Dubai instead of London or New York or other international exchanges, and which want to be in the region - we provide the answer for them. It is not an exchange established for all companies.

There are many companies listed in the regional stock exchanges and they are happy and doing well. We have lifted the bar a little bit higher. The requirements to list are quite competitive; it is not very stringent, but it is not made for some companies.

You have to be profitable for the last three years. You have to have the right governance structure in terms of people, committees, in terms of presenting your financials.

These are requirements similar to elsewhere in the world, but it is catering for the local and regional markets. It's a niche exchange.

Let's say I am a company from this region. I don't necessarily want to list in New York or London. I want to list in a place where I am known, where the investors know my product, know my services - they can identify with me. I want to be close to my region.

Yes, I can do a listing in London to give me exposure to that capital market. But first and foremost, I want to be close to my clients, close to my investors, close to the countries where I am operating.

How does DIFX compare against the parallel developments of DFM and ADSM?
We don't compete with the local markets; we actually complement them. Companies who want to list on the DIFX of course have the choice of listing in other exchanges; they still have the option to list locally.

For instance, companies who are operating region-wise maybe don't want to be listed as traded in local currency.

If you take a company which is operating beyond its borders - be it Emaar, be it Orascom - they would like to be perceived as being listed and traded on an international exchange.

And, again, not far away from home. So this is an alternative. But for them to be able to do so they need to meet certain requirements, similar to those internationally.

Dual listings are a possibility. Companies in China are doing listings in London. People and companies would like to list primarily in their own exchange, in their own background.

But at the same time, it is good for them to also have a GDR listing in London or the US because it helps them to tap other sources of capital.

Can you describe how DIFX features in the bigger picture of DIFC, and Dubai's development as a financial centre?
What differentiates Dubai from other regions and financial centres are two things. We have a regulatory authority with world standards in place, and we have an exchange, which other places don't have.

So this gives Dubai the edge. We have seen it at DIFC - hundreds of institutions are coming and establishing a presence here - hopefully, to be seen, and to be recognised as being domiciled in a well-regulated environment.

Of course, working and living and playing in Dubai is attractive. This is a complete formula. We are able now to reach the retail investors; this is a very important
development.

Now investors can reach us and trade through their brokers - they are connected to the exchange. And this is the first, and the only, exchange in the region where you have market-makers. So, we have a different structure, which we don't expect to be as volatile.

What is your view of the supposed rivalry between Dubai and other regional centres?
Qatar is mainly in the area of project financing. There are huge requirements in Qatar. They don't have the ambition to have an international exchange.

In fact, none of the other competing centres have this ambition. We are the only international exchange in the region.

If you have an exchange, you need to have the investment banking services - these are the institutions which are going to take the companies public. These are the companies which will issue the Sukuks. You will see the concentration of those in the DIFC.

Can you give a strategic view of DIFX's outlook?
We are open for business; people have to come and shop. Smaller companies - if they come and knock on our door and ask if they can list - we tell them what they need. (To some) we say: sorry.

The bigger companies come and see the requirements and then apply. Once we are ready, as we are now, we would expect the response to be tremendous actually: regionally first, and then internationally.

Regionally, (we) are looking at the Arab world all the way from Morocco to the Gulf, and Turkey is also welcome. Listings from India, Pakistan, Malaysia - these are companies which want to tap the resources available here.

They may consider either a primary or secondary listing. But within the region - the Gulf, Middle East, Africa - they are what we are targeting.

Looking at the global context of feverish discussion of international, cross-border exchange mergers, where might DIFX conceivably be placed over time?
We are still very young. It is unfair to compare us to these giant exchanges - they have been there for years.

We would love eventually to be perceived in the way that people look at the capital markets and exchanges
worldwide - those who start trading in Tokyo, then move to Hong Kong, then Singapore, but instead of listing in London, they can stop by at Dubai.

The missing part is the Middle East.

How much is there a prestige issue in this field generally? For instance, isn't it true that trading no longer requires so much of a physical presence?
Physical presence is not required. Today, as people are connected, you don't need physically to be on-site to (be) the market. You have access to the brokers.

Here would be the market-makers, the clearing, the listing, the brokers, all in one place - (and) you could reach from wherever you want. As for prestige, the whole Dubai mentality is a business mentality.

(People) want it to succeed because it makes sense, because it complements everything we see around us.

How much does Dubai's financial story depend on the regional economic story?
Dubai's financial story (does) depend on the regional economic story: We have seen the DFM being affected by the liquidity coming from Saudi and Kuwait. But if you look at the growth of the UAE and the growth of Dubai, it is less dependent on oil and more on supportive services - tourism, etc.

Diversification has succeeded whereby oil becomes secondary now. It is no more the primary mover of what is happening in Dubai. Maybe this is less so in Abu Dhabi and Kuwait, but I don't think even if oil prices drop, you will see less activity, less trading. Dubai has filled a gap.

Interview by Gaurav Ghose, Financial Reporter