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An Emirates NBD branch along Al Wasl Road in Dubai. The bank’s CEO said prudent balance sheet management and a strong ability to attract and retain retail and corporate deposits had helped boost the bank’s liquidity position in a challenging year. Image Credit: Gulf News Archives

Dubai: Emirates NDB, the biggest bank in Dubai, announced on Monday plans to increase its foreign ownership limit to 40 per cent, opening the door for foreign fund flows to boost share prices.

The bank said it has implemented a hike in its foreign ownership limit to 20 per cent from 5 per cent, having already obtained regulatory approvals to do so.

It will seek the necessary approvals to raise the limit further, it said, without specifying a timeline for that.

Share prices jumped nearly 15 per cent on the news, pulling the Dubai bourse’s main index around 5 per cent higher for the day.

The move from Emirates NBD comes after another large UAE bank, First Abu Dhabi Bank, in mid-July proposed a hike in its foreign ownership limit after the country’s government announced 100 per cent foreign ownership in certain economic sectors.

The government announcement comes as the UAE works to attract more foreign investors and ease regulations around ownership, investments, and even residence visas.

Shaikh Ahmad Bin Saeed Al Maktoum, chairman of Emirates NBD, said in a statement that the increase in foreign ownership limits will “strengthen the UAE’s proposition as one of the most attractive economies for foreign direct investment, and contribute to increased liquidity and depth in the UAE’s capital markets.”

It will also diversify the bank’s investor base, he said.

Increasing foreign ownership limits allows more foreign investors to buy the stock, and tends to signal an increase in transparency to come from the company in order to attract those new investors.

Aarthi Chandrasekaran, portfolio manager at Shuaa Asset Management, said the move to raise foreign ownership limits was long due and has been expected, considering most large banks in the UAE have foreign ownership limits of 15 per cent (compared to Emirates NBD’s 5 per cent).

She estimated that the rise could bring a total of $425 million (Dh1.56 billion) to $450 million in foreign funds flow to the stock, if it is included in the emerging markets indices by MSCI and FTSE Russell.

“The Foreign Ownership Limit (FOL) increase unlocks the value of ENBD, given that their FOL was capped at 5 per cent — way below all the banks in the UAE. And hence, the bank continued to trade at a steep discount to its peers,” she said.

“As far as flows are concerned, market is anticipating a probable inclusion in MSCI by mid next year (May 2020), and [fund flows] could be roughly $300 million, assuming that liquidity will pick up; while flows from FTSE could be anywhere between $125 million and $150 million.”

Similarly, Mohamad Al Hajj, equities strategist at EFG-Hermes Holding, estimated that if Emirates NBD were to be included in the MSCI and FTSE benchmarks, that could trigger inflows of about $426 million, he told Bloomberg.