The number of companies becoming publicly listed in the United Arab Emirates (UAE) has gone through the roof in recent months, but experts are warning that this could lead to another financial crisis.
There is concern that the rush of new stock listings could expose the fragility of over-stretched investors. This could potentially lead to a repeat of the events of six years ago, when the UAE equity markets plummeted, as share-holders who’d over-extended themselves were forced to reduce their portfolios. For example, Dubai dropped more than 70% from its July 2008 level in just six months. The UAE’s stock market regulator introduced new rules and harsher penalties to discourage leveraged trading in January, but authorities are worried that the guidelines may be being ignored.
It is also thought that the rush to list companies could encourage firms without proven track records to go public, eager to cash in. Should one of these offerings go badly, bankers say, it could undermine the whole system before the recovery is established.
The flurry of activity in the stock markets was spurred on by the initial public offering (IPO) of the Emaar Malls Group, which attracted orders worth more than $47 billion for its $1.58 billion Dubai listing last month. The level of interest in the Emaar group is mirrored with similar confidence across the UAE’s markets, with Dubai’s index more than trebling since 2013 and Abu Dhabi’s up 95 per cent in the same time.
The new central bank governor, Mubarak al-Mansouri, has warned chief executives of the country’s banks about repeating the mistakes of the past on lending to investors in IPOs.