Dubai: The proposal of First Abu Dhabi Bank (FAB) to remove the Foreign Ownership Limit (FOL), if approved, could be a driver of massive foreign inflows into bourses, experts said on Thursday.
The announcement from the UAE’s biggest bank by assets proposed, comes a few weeks after the government announced 100 per cent foreign ownership in 122 economic activities including construction and healthcare among others but excluded banks. FAB’s current FOL stands at 40 per cent.
This move could be instrumental for other banks and companies in the UAE to follow suit, resulting in inflows of billions of dollars in active and passive money getting invested.
“The annoucement by FAB board to suggest opening 100 per cent was a surpise to many in the banking sector. It was surprising because less than 6 months ago, the central bank of the UAE kept a cap of 40 per cent on foreign ownership limit on banks and it was told that banks cannot exceed that. The move in markets comes because the weightage of the companies in the MSCI and FTSE would increase substantially and that would mean more foreign flows into companies in the short-term,” Mohammed Ali Yasin, chief strategy officer at Al Dhabi Capital told Gulf News.
“This decision could be a catalyst for a complete change in market direction and weaker liquidity that we have seen for the past four months. I would also like this to complement by increasing the local participation. This kind of moves are sustainable and market moves continue in the long run,” Yasin added.
Currently, Emirates NBD has a FOL of 20 per cent and that of Emaar Properties stands at 49 per cent.
“FAB’s decision to scrap the ‘Foreign Ownership Limit’ is clearly driven by the objective of becoming the largest MENA bank in terms of market capitalization. Interesting, since MSCI were not restricting the bank’s index inclusion factor due to the FOL, but because of lower real free float. However, if they change the methodology then this can result in a huge amount of inflows. This has certainly infused enthusiasm in the market & we would not be surprised if we see similar moves in other stocks,” Vrajesh Bhandari, senior portfolio manager at Al Mal Capital said.
Currently the law does not allow 100 per cent foreign ownership in oil gas and banking sectors, and that would need ammendment.
“I think for FAB’s intention to get materialised, it could take substantially long period of time and efforts from all stakeholders including the government. The same would be applicable for other banks as well,” Joice Mathew, senior Manager - Research, United Securities based in Muscat told Gulf News.
FAB shares on Thursday jumped 4 per cent to end at Dh15.60, after hitting a high of Dh16.24, almost nearing its 52 weeks high of Dh16.96. Traded value nearly doubled to 9 million from a 30-day average of 5 million shares. The Abu Dhabi Securities Exchange jumped 2.7 per cent to end at 5,218.13.
Other banks such as Emirates NBD and Dubai Islamic Bank jumped 1.8-2.6 per cent. Emirates NBD closed 2.65 per cent higher at Dh11.60. Dubai Islamic Bank closed 0.68 per cent higher at Dh5.18. The Dubai Financial Market general index closed 1.7 per cent higher at 2,762.98.