DIFX plans 10-15 IPOs over next year

With the imminent launch of the world's newest capital market, senior executives from the new Dubai capital market have been on the road explaining the DIFX to the regional business and financial community.

'The DIFX is unusual in that we started with the regulator first, before the exchange started, unlike most global exchanges which evolved the other way around,' Chief Executive Officer Steffen Schubert told the Australian Business Group in the Gulf lunch this week.

'At first we also started off with the idea of being a vehicle for the privatization of Dubal and Emirates but with the high oil price it became clear that that was less of a priority. So we are focused on serving larger companies which want to raise at least $50 million by listing on the DIFX.'

He explained that the DIFX will expect to launch some 10-15 IPOs in the first 12 months of its existence and create around 15 cross-listings of shares in major international companies which already have a primary listing elsewhere. The first IPO will be for the Lebanese owned mobile phone company Investcom which is expected to raise $750 million.

'We have already proven a catalyst for change in the Dubai market,' he said. 'For example, when I arrived two years ago I tried to cash a US dollar cheque and found it would take four to six weeks in Dubai. For a capital market settlement needs to be in 10-20 minutes, so clearly there was a lot to do in terms of basic infrastructure.

'Over time we have got all these bits together - Standard Chartered Bank is now doing dollar settlements for example, and we will be operating side by side with the existing Dubai Financial Market.'

However, Mr. Schubert made it clear that IPOs on the DIFX are going to be a very different story from the DFM.

'The valuation of shares in IPOs will be conducted by merchant banks, and will not be a matter of pricing all shares at one dirham and watching them become 800 times oversubscribed.'

Changes to UAE Company Law

This will occur in parallel with changes to the Company Law in the UAE which will reduce the percentage that large groups are required to float from 55% to 25% - a factor that has limited the attractiveness of IPOs to start-ups in the past.

'We will also have remote traders on the DIFX, which is something new for the Middle East, initially in London though we hope to include New York in the future,' said Mr. Schubert who was formerly Chief Executive of EASDAQ in Brussels and Managing Director of the Bavarian Stock Exchange in Munich.

'We are going to offer a very wide range of products and hope many people will decide to invest through our exchange which will be very transparent and operated to global standards of reporting.'

DIFC chairman speaks

Meanwhile, DIFX chairman Lynton Jones, addressed the MEED Capital Markets conference, and said: 'The capital markets of the region have grown even more than one might expect from the overall economic picture.

'One reason why is that financial exchanges are still relatively new in the region, so many companies are discovering the advantages of raising money through shares, bonds and other securities, as opposed to the traditional route of borrowing from banks.'

He said the capital markets structure of the region is ready for a new phase. Mr. Jones is a former managing director of NASDAQ International and was head of public affairs at the London Stock Exchange.

'Although the capital markets in the region have shown they can develop new products - the dramatic growth in the issuance of Islamic securities is an example - they have yet to develop some of the products that have proved highly successful in other parts of the world. These include index products, as well as derivatives such as futures and options.'

He identified Islamic finance as a growth area targeted by the DIFC under whose umbrella the DIFX operates.

'The global market for Islamic financial products is worth more than $260 billion and is growing at 10 or 15 per cent a year. The DIFC aims to become a centre for product development for Islamic investors and borrowers.

'We aim to be the first exchange to introduce index products to the region - including sharia'a compliant index products. Among our wide range of funds, we plan to list umbrella and hedge funds, while we will also be able to list warrants over equities - again, these will be firsts in our region.

Mr. Jones also highlighted another DIFX first: 'In 2006, we plan to become the first exchange in the region to list derivatives such as futures and options.'

These are exciting times for the Dubai capital markets, and while there is a sense in which the DFM is the past and the DIFX the future, the two exchanges will run in parallel. But some bankers believe it should not be long before the new upstart eclipses its older brother.