Complex Made Simple

Experts are re-stirring the idea of merging DFM, ADX, and Nasdaq Dubai

More than a decade from when it was first announced that Dubai Financial Market (DFM), Abu Dhabi Exchange (ADX), and Nasdaq were merging, the idea was again brought to life

The fragmented regional exchanges, each operating their own systems hinders their ability to scale up Speculation of a merger among the exchanges can be traced back as far as a decade ago In July 2014, the planned merger of DFM and ADX was shelved

More than a decade from when it was first announced that Dubai Financial Market (DFM), Abu Dhabi Exchange (ADX), and Nasdaq were merging, the idea was again brought to life.  

Mark Cutis, chief executive of Abu Dhabi Global Market (ADGM), recently told CNBC about the possibility of the three exchanges in the UAE merging at some point. saying: “Eventually, the economics and the imperatives of efficiency outweigh other considerations.”  

Speculation of a merger among the exchanges can be traced back as far as a decade ago, with the effectively competing with neighboring Dubai Financial Market (DFM) and Nasdaq Dubai for listings and trading activity. 

Tarek Fadlallah, CEO of Nomura Asset Management Middle East, offered a critique of the current arrangement.

“The fragmented regional exchanges, each operating their own systems and under their own rules, hinders their ability to scale up and attract the largest institutional investors,” Fadlallah told CNBC. 

“Among regional exchanges, only the Saudi Tadawul has made major progress which has seen the number of listings soar, a steady increase in foreign ownership, the launch of a secondary market, and the introduction of a range of new products, including REITs and derivatives,” he added.

“In stock exchanges, size matters.”

Saudi Arabia’s Tadawul is the largest exchange in the region by market capitalization. 

Progression of Merger talks

Towards the end of March 2010, and on the 10th anniversary of their founding, DFM and ADX held merger talks as dwindling volumes and shrinking profits intensified consolidation pressure at that time.

“It is in the interest of everybody to consolidate,” DFM executive chairman Essa Kazim told reporters then.  

DFM’s profit fell by almost half in 2009 as market turnover slumped 43%, a five-year low of $47.2 billion. ADX turnover slid 70% in 2009 to $19 bn.

This collapse in trading was spurring UAE bourses to consolidate, with many questioning the wisdom of having three stock exchanges — DFM, ADX, and Nasdaq Dubai in a country of 5 million people.

Kazim said back in 2010, that the DFM’s planned takeover of Nasdaq Dubai will be completed within two weeks, with DFM paying Nasdaq $121 million for its one-third stake, and sharing a single trading platform.

In July 2014, Reuters announced that the planned merger of DFM and ADX, which had been mooted for a number of years, was shelved, as terms could not be agreed, despite a number of key impediments being overcome since talks began in 2010.

DFM’s value had risen 2 billion dirhams ($545 million) at the end of September 2013 to 4.64 billion dirhams ($1.26 bn) at the end of March 2014.

The merger plan valuation, conducted by Goldman Sachs had put ADX at about 10-12 times EBITDA.

Analysts, at the time, stayed optimistic the merger will eventually happen.

“It should not hinge on valuations, profit or loss and such things. It is a matter of national strategy and national economic interests,” said Wadah al-Taha, chief investment officer at Dubai-based Al Zarooni Group.

“It will happen, if not now, later. It will be politically driven and forced to happen.”

 In May 2020, the DFM fully doused speculations that it is merging with ADX.