Large promoter holding leads to low traded value/market cap ratio in UAE bourses?

FOL fails to grow though several companies raised limits in recent past

DUBAI-ABU DHABI/December 30-2020: The low traded value/market cap ratio in the UAE’s stock markets hugely belies the size of the country’s stock market, which flaunts about 135 listed companies and close to AED1 trillion combined market capitalisation as of September 30, 2020.

Talking to businessbenchmark.news, market analysts explained that companies with low free floats predominantly due to large promoter holding may continue to spawn muted activity in the markets for obvious reasons.

And more recently, trading has been suspended in a few companies following their accumulated loss having crossed 50 per cent of the share capital.

FOL increased

Even as several prominent companies listed on the two exchanges – Abu Dhabi Securities Exchange (ADX) and Dubai Financial Market (DFM), have raised their foreign ownership limit (FOL) in the past few months, the FOL has failed to make much progress upwards, and queerly enough, in several companies, the FOL has even declined.

Though ADX enjoys a market capitalisation of AED672.7 billion as of September end, 2020, the traded value on the bourse during the third quarter was just AED17 billion, which accounts for just 2.5 per cent of the market cap, according to data compiled by Central Bank of UAE.

Low turnover ratio

The quarter ending June 30, 2020 showcased a more dismal picture as the traded value/market cap ratio works out an abysmally low 1.96 per cent. The low ratio is more pronounced on ADX compared with its Dubai counterpart ostensibly due to the lower free float in key companies there.

A closer look into the major shareholding pattern with the large companies listed on ADX proves the point. In the case of Etisalat, the larger telecom player in the country by far, 60 per cent of its ownership is vested with a single entity, Emirates Investment Authority (EIA).

 

The largest bank, First Abu Dhabi Bank (FAB), is 33.29 per cent owned by Abu Dhabi Investment Council (ADIC), whereas Aldar Properties, the Abu Dhabi-based property major, is 29.75 per cent owned by Mamoura Diversified Global Holding and 7.58 per cent by Al Saraya.

Starker is the case with Abu Dhabi Commercial Bank (ADCB), where a single shareholder – Abu Dhabi Investment Council (ADIC) owns 60.20 per cent, rendering these companies with fewer shares being offered for selling.

ADX enjoys larger market cap

ADX has accounted for 68.62 per cent of the combined market capitalisation of the two UAE stock markets as of September end with only 31.38 per cent left to be controlled by DFM.

But on the traded value front, it has been noticed that ADX always trailed DFM. While the average quarterly traded value on ADX for the period ending September 30 was to the tune of AED17 billion, that on DFM was AED19.3 billion.

Market cap of DFM, ADX

While the market cap of ADX has historically been much larger than that of DFM, when it comes to the traded value, Dubai has always been the frontrunner between the two.

In fact, the gap between the market caps of these two stock markets has been steadily widening with March 2018 statistics showing ADX commanding 56.10 per cent of the combined market cap, whereas DFM having accounted for the remaining 43.90 per cent.

Promoter stake in DFM cos

The large promoter ownership trait in the UAE’s listed companies, in effect, leaves the move by those companies to raise their foreign ownership limit somewhat infructuous.

According to brokers, buying adequate quantities of shares in companies with low free float is difficult, and this apparently constricts the entry of potential foreign investors.

Though large promoter holding is not so much an issue on DFM as in the case of the Abu Dhabi bourse, large buying in companies such as Emirates NBD or Emaar Properties may still pose a challenge.

In both these companies, the largest single shareholder is the Investment Corporation of Dubai (ICD), which controls 55.76 per cent ownership in the Dubai’s largest bank and 29.22 per cent in the property major, Emaar Properties.

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