Hike in foreign shareholding limit in Etisalat, Du unlikley to have impact soon

By CL Jose

Etisalat’s FOL at 5.25 pc, Du at 0.75 pc way below 20 pc earlier permitted

DUBAI/March 02-2021: Last year saw several large companies listed on both Dubai Financial Market (DFM) and Abu Dhabi Securities Exchange (ADX) raise their foreign ownership limit (FOL).

The earlier limits of 20 and 25 per cent were seen being raised to 40 per cent and 49 per cent by most large listed companies in the country.

The decision this year by the two telecommunications operators in the UAE, Etisalat and EITC (or Du) to increase their FOL from 20 per cent to 49 per cent did make headlines, but left many wondering what purpose the move would serve.

The moot question is whether the decision can have any impact on the shareholding pattern of these companies.

The current FOL in these companies is way below the permitted foreign investment level of 20 per cent, and the chances for the foreign shareholding in these companies reaching even in the vicinity of this permitted level is remote given the shareholding structure of these companies.

Too low foreign shareholding

In the case of Etisalat, the present FOL is just 5.25 per cent, whereas that of its Dubai counterpart, Du, is an abysmally low 0.75 per cent, leaving more than sufficient headroom within the 20 per cent permitted FOL as discussed before.

The main reason for the low FOL in these companies, according to capital market experts, is the low free float available in these companies, thanks to the large promoter stake.

Large promoter stake

While 60 per cent of Etisalat is owned by Emirates Investment Authority (EIA), the Federal investment entity, the UAE’s second licensed telecommunications provider, EITC (du) is 50.12 per cent owned by EIA, 10.06 per cent by Mubadala and 19.7 per cent by Emirates International Telecommunications, thus leaving only about 20 per cent of the shares to be traded by public.

Unless the promoters in these companies dilute stake or fresh capital is raised, new foreign investors have hardly any opportunity to buy into these companies. And this leaves the recent move to increase in FOL from 20 per cent meaningless to that extent.

And on the part of EITC (du), it has made it amply clear that no new investors will be allowed to own more than 5 per cent of the share capital of the company.

But at the same time, the company said in a statement, “With the new foreign ownership limit coming into effect, overseas shareholders’ available liquidity is expected to improve substantially, considering the increasing demand for allowing additional space.”

Many banks raise FOL

The list of big banks that raised their FOL has the names like Emirates NBD, First Abu Dhabi Bank (FAB), Abu Dhabi Commercial Bank (ADCB), Abu Dhabi Islamic Bank (ADIB) and Dubai Islamic Bank (DIB).

Experts however, point out that these decisions though may not be warranted to boost foreign investment per se, may help have an ‘sentimental’ impact on the market and could send positive messages to the investor world

“A higher cap on foreign ownership will allow index providers such as MSCI and FTSE Russell to consider an increase of the stock’s weight in emerging-market equities benchmarks, triggering passive inflows,” the experts reminded businessbenchmark.news.

In fact, Etisalat, the UAE’s biggest phone operator, first opened up to foreign ownership in 2015 with a 20 per cent limit and this was followed by its smaller counterpart, Du. The UAE has accelerated efforts to attract investment into an economy reeling from the coronavirus and a decline in oil prices.

Foreign shareholding declined

A close look at the shares listed on DFM shows that in most cases (we have analysed only shares on DFM), foreign investment level has dropped in the past one year, despite the noise and hype the foreign investment slogan has created in the market.

In the case of Air Arabia, the foreign shareholding has dropped from 22.33 per cent to 20.65 per cent in the past one year. For Aramex, the decline has been from 47.41 per cent to 30.62 per cent, whereas the foreign ownership level (FOL) dropped from 37.26 per cent to 35.75 per cent for the leading property company, Emaar Properties.

Nevertheless, the companies such as Emirates NBD, Du and Union Properties witnessed their FOL increase though marginally, from 9.02 per cent to 11.52 per cent, 0.40 per cent to 0.75 per cent and 19.55 per cent to 24.85 per cent respectively in the past one year.

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