Unifying the UAE stock exchanges a win-win strategy

There are no losers and only winners from a plan to unify the three UAE stock markets with Abu Dhabi simultaneously buying Dubai’s 20 per cent stake in the London Stock Exchange for $1.5 billion.

The deal reported yesterday in The Sunday Times, without revealing its source, would follow an important move to sort out the debts of Borse Dubai that closed at the end of last week. The company that controls Dubai’s two stock exchanges sold some of its shares in the Nasdaq OMX Group to raise $673 million towards repaying a $2.45 billion loan.

Another debt sorted

Lenders will get two per cent interest on part of the balance and extend maturities to six years, and $500 million of loans will have maturities extended for four years. This is certainly another major hurdle in clearing up the Dubai debt mountain and particularly significant for its beleaguered bourse.

Indeed, the loan agreement opens the way to a three-way UAE stock market merger. Actually the Dubai Financial Market and Nasdaq Dubai have already completed their merger so this would really be a matter of putting the DFM and Abu Dhabi Securities Exchange onto a common platform.

The technical side is easily achieved through common OMX technology but the human aspects are more complex. Where would the bourse be physically located, and more importantly how would the board be constituted and who would be running the show?

For an electronic exchange the physical location is not very important but given that the Dubai International Financial Centre has created a massive infrastructure for the financial services sector the logical place for a headquarters would be Dubai. Then again if Abu Dhabi is putting up the money it may not agree and a second trading floor will be kept.

On the other hand, it makes eminent good sense to have a single stock market for the UAE which is a relatively small country, albeit the second largest economy in the Arab World and one with foreign investments comparable to Switzerland.

New initiative

A larger, stronger bourse could shake off the failures of the recent past and look forward to promoting a series of new IPOs to get the financial sector back on its feet. The last minute cancellation of the Axiom IPO in Dubai this month has set many thinking that a big new initiative is needed to bring the UAE financial sector to life again.

However, the more immediate clouds on the horizon are in global financial markets with a mounting sovereign debt crisis in Europe threatening to become Lehman Brothers part two. At the same time, Dubai has still not actually signed off its $24.9 billion Dubai World rescheduling deal, and an estimated $18 billion in debt is due to mature next year.

But in times like these it may be possible to achieve necessary reforms, like unifying the UAE bourses that would be impossible in better times. Officials later denied the 20 per cent LSE stake sale rumor but said nothing about the possible merger.