Time for UAE boards to admit foreign shareholders

The public auction of five to six million shares in Tabreed at the Dubai Financial Market this Monday looks likely to result in a substantial block of this UAE company's shares ending up in foreign hands.

Market rumours say a leading Saudi investor is posed to swoop on Tabreed, which owns, operates and builds centralized cooling plants across the UAE, mainly for military installations. This blue-chip's shares have been severely depressed since the stock market crash of 1998 and today barely trade for more than their IPO price.

Analysts say this is ridiculous given Tabreed's evident success in building a unique local energy utility company with a strong cash flow that will pay dividends for the first time this year.

Last December at an extraordinary general meeting Tabreed took the decision to allow up to 49% of its shares to be owned by foreigners, with a cap of 20% for a single shareholder. So far only Tabreed, Oasis International Leasing and Emaar Properties allow full foreign ownership of their shares.

Perhaps when these companies demonstrate that foreign ownership can increase a share price then other listed UAE companies will also decide to change their articles of association. For there is no law to stop them having foreign shareholders.

In the context of the Middle East foreign ownership is most likely to come from Saudi Arabia and Kuwait, as these two countries have large stock exchanges of their own. Qatar, Bahrain and Oman have much smaller bourses but may also want to diversify overseas.

Only when a UAE stock market boom is really raging would Wall Street and London investors even consider investment in this region. But it is worth revisiting the benefits of a lively stock market to listed companies.

A rising share price, for example, allows companies to fund acquisitions, mergers and takeovers through their own shares. This could greatly assist the creation of regional businesses with economies of scale and greater efficiency.

In the context of the GCC customs union and coming monetary union it surely makes sense to create trans-Arabian mega-corporations. Given the UAE's status as the trading, business hub and its ambitions in the financial sector, it would be logical for its local business groups to lead this process.

Without a more dynamic bourse that process will be much more difficult. But worry not, the forces unleashed by the creation of the public stock exchange in the UAE a few years ago are about to be felt in the shape of more IPOs and stock market listings.

Surely the next step is for all these companies to open up to foreign ownership. This new source of investors will push up share valuations and help to provide the kind of dynamic stock market that the UAE needs to fulfill its full potential.