UAE revives deal to merge its two main stock exchanges

The United Arab Emirates has revived a proposal to merge its two main stock exchanges in a state-backed deal that could boost trade in the local market and attract more foreign investment to the Gulf state, sources familiar with the plan said.

Talks on a potential merger between the Dubai Financial Market (DFM) and the Abu Dhabi Securities Exchange (ADX) have occurred on and off since at least 2010. There are no common listings on the exchanges; a merger could deepen the equity market of the Arab world's second biggest economy, encouraging more companies to list their shares and international institutions to buy them. But progress toward the proposed tie-up halted because of differences over how to value the exchanges, and because the two emirates were preoccupied by other issues such as the aftermath of Dubai's 2009-2010 corporate debt crisis.

In recent weeks, however, officials in Abu Dhabi and Dubai have focused on the idea again, with the two emirates showing willingess to consolidate some of their business interests to compete in the global economy, the sources said.

"The entire valuation, structuring of the deal is done. It's been an ongoing process and the decision is now pending at the highest authorities in the two emirates," one source said.

"It's not a question of whether they would do it now. It's a question of when," added the source, speaking on condition of anonymity as the matter has not been made public.

Spokesmen for ADX, DFM and the Abu Dhabi government declined to comment. A spokeswoman for the Dubai government's media office was not immediately available for comment. UAE market regulator Securities and Commodities Authority said it had no information on the matter.

Valuation
The sources did not provide any valuation for the deal. DFM, which is the only listed Gulf stock exchange, has a market value of $4.4 billion; its stock price has nearly doubled this year and risen 51 per cent in the past month, as Dubai's recovery from its debt crisis has accelerated.

DFM is 80 per cent owned by Borse Dubai, a holding company which also owns a 67 per cent stake in the Nasdaq Dubai bourse, as well as nearly 21 per cent of the London Stock Exchange , according to its website. Nasdaq Dubai is unlikely to be part of any merger, one source said.

Abu Dhabi and Dubai compete in many ways; they have rival airlines, and Abu Dhabi this year announced plans to develop an international financial centre that could eventually take business from Dubai in some areas. But the emirates have also cooperated, and Abu Dhabi bailed out Dubai with a $10 billion loan during its crisis. Early this month, Dubai and Abu Dhabi decided to merge their state aluminium producers to create an entity with a combined enterprise value of $15 billion. A second source said the merged exchange was likely to be owned 45 per cent each by the Abu Dhabi and Dubai governments, and would most likely be called Emirates Bourse, with trading floors in both cities. The remaining 10 per cent would be owned by minority shareholders, the source said, adding that the merger would involve the transfer of an undisclosed sum from Abu Dhabi to Dubai.

Benchmark
Companies listed on DFM, which include developer Emaar Properties and lender Emirates NBD, have a combined market capitalisation of about $47 billion. Stocks on the Abu Dhabi exchange, home to companies such as regional telecommunications giant Etisalat and National Bank of Abu Dhabi, have a market value of $94 billion, according to Thomson Reuters data. DFM's main stock index has gained 46 per cent so far in 2013 while Abu Dhabi is up 38 per cent, making these bourses among the best-performing globally. First-half trading volume on DFM more than doubled to 31 billion shares from 14.7 billion a year earlier.

Last week equity index compiler Morgan Stanley Capital International decided to upgrade the UAE to emerging market from frontier market status, which is expected to attract hundreds of millions of dollars of institutional portfolio investment to the UAE.

"A potential merger would be a major move for regional markets. Consolidation calls have been looming for years, and it's high time it's implemented now," said a Dubai-based fund manager.

Goldman Sachs Inc was hired by both Dubai and Abu Dhabi to advise on the possible merger in 2010. The US bank has retained the mandate and has been involved in the valuation process, two of the sources said.