Dubai: With the UAE government rooting for family-owned business to list publicly, analysts hoped this would be the start of a much-required reform in the local capital markets.
The UAE Cabinet on Saturday approved a draft law that encourages UAE citizens to engage in business activities and family-owned businesses to list on the local stock markets, as it looks to boost the nation’s business climate and better the country’s trade and investments in line with international standards and regulations.
Going public has up until now remained a distant priority for most of the region’s venerable family businesses, with succession issues and corporate governance structures among businesses’ more pressing concerns. Although analysts sought further details on the law, they said the move would help boost sentiment and lead to a subsequent market reform.
“The recent law is a long-awaited one and we are hoping it will change things,” said Rami Sidani, head of frontier investments at Schroders in Dubai. “We hope it’s the beginning of a new period for the UAE market where major reforms are needed.”
Capital markets in the UAE have unfortunately lagged with the progress of the country and other sectors, Sidani said, adding that the development or the evolution of the market was slower than other regional financial markets.
“At a time when other markets have started increasing, for example, the foreign ownership limits in order to liberalize the market further and attract international capital into the markets, the UAE markets hasn’t adjusted any of the FOLs that they had in place, which consequently limits the weight of the market in the MSCI emerging market index.”
“The recent law is a long-awaited one and we are hoping it will change things. We hope it’s the beginning of a new period for the UAE market where major reforms are needed.
Sidani said the move will encourage family businesses, which have been integral for the underlying economy and not just for the performance of the markets. “By encouraging family businesses to list, the capital markets will benefit from a very important source of funding going forward, reflecting positively on the domestic economy.”
Family-owned businesses represent a large part of the UAE business community, which according to analysts at PwC, contribute 60 per cent of the country’s GDP and 80 per cent of the nation’s workforce, with $1 trillion estimated to pass from one generation to the next within a decade.
Incidentally, Dubai announced the setting up of a third stock market last week — at the just announced Dubai Future District, which analysts reckon could be the destination that family enterprises could be headed in.
“The UAE market has also lagged in terms of new listings and hasn’t seen many IPOs coming to the market and this has a lot to do with the same rules and regulations that are predominantly linked to the listings of family businesses,” Sidani said.
Questions on transparency
While corporate governance in the Gulf has been evolving, family businesses are yet to fully commit to the fray. Experts say this needs to change since many of these businesses have a major impact on regional economies.
Hawakamah Institute for Corporate Governance said only two per cent of Middle East companies and banks followed best international standards in 2007. But with the financial crisis in 2008-2009 highlighting the need for strict governance practices across the world, several new regulations have been formulated since then in the region as well.
In the UAE, the Securities and Commodities Authority (SCA) had implemented a comprehensive set of corporate governance regulations for publically traded companies in the UAE, ensuring that all the listed companies in the country strictly adhered to governance regulations.
But if the latest law is implemented, analysts said it would mean family businesses would need to take corporate governance seriously as publicly-listed companies require effective corporate governance and disclosures. Historically the businesses were finding it difficult to go public due to complex IPO preconditions.