UAE exchanges perform merger U-turn, eye consolidation (page 1 of 2)

"[The bourses] are all owned by governments and they're unlikely to want to give up the stock exchange and consolidate with another," he told a packed investor conference in London.

Fifteen months later, and it's a very different story. Sluggish trading volumes and a dearth of new offerings have already prompted the merger of the DFM and Nasdaq Dubai - which by the time of the integration had just 16 equities listed on its platform, of which only DP World stock was traded daily.

Goldman Sachs merger report

Meanwhile, investment bank Goldman Sachs is close to completing a report on the proposed merger of the DFM with its counterpart in Abu Dhabi. The report will be presented to Emirates Investment Company, which is supervising the proposed merger, and follows months of top-level talks between the two exchanges.

The DFM is 80% owned by Dubai government vehicle Borse Dubai, while the Abu Dhabi government owns the ADX outright - and the political objections highlighted by Healy appear to have given way to stone-cold pragmatism.

"Over the last few months it has become clear that Dubai and Abu Dhabi are working very closely together on a number of fronts, and this is one of them," Tarek Lotfy, Managing Director at Dubai-based investment house Arqaam Capital, tells AMEInfo.com.

"There has been a realisation that there will be obvious benefits [to a merger], and obviously the merger of DFM and Nasdaq Dubai acted as a precursor to a larger consolidation across the UAE."

UAE markets seek liquidity, volumes

Some argue that change is long overdue - as of the end of September UAE markets had been the worst affected among Gulf peers, since the economic slowdown hit the region. Year-to-date the DFM and ADX were down ten percent and five percent respectively, but since 2008 highs, they had dropped 74% and 49% respectively.

"The intention is to secure increased liquidity, volumes, and a wider investor base, both domestic and regional, and international," Osman Raie, Head of Middle East Equity Sales at HSBC, tells AMEInfo.com. "A deeper pool of equity investment means easier access to capital for companies, a more transparent market, and less volatility - all good things."

At Arqaam, Lotfy emphasises increased operational efficiencies as well as other advantages. "You'd have a unified exchange and settlement system, and from a pricing point of view and a monitoring point of view it becomes one exchange instead of two, which would boost efficiency," he says.

"Another benefit is that it would show the strength and unity of the UAE; one consolidated exchange would send a far stronger message than having two exchanges."

Gulf bourses see 50% decline from 2008 peak

The new bourse would be the second largest single exchange in the region, after the Saudi Tadawul, and its progress will be followed closely by other Gulf governments concerned that regional exchanges have so far proved incapable of attracting adequate, sustainable dealflow.

Gulf bourses are down an average of 50% since their 2008 peaks as thin volumes and high trading volatility - sparked mainly by regional retail investors - have sunk valuations on the region's exchanges and kept international institutions on the sidelines, awaiting clarity on companies' debt troubles.

IPO activity has also slowed dramatically across the region.