UAE and Saudi capital market reforms are bearing fruit

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In the years leading up to 2020, if you asked financial market participants about the UAE and Saudi Arabia, interest would primarily lie in raising funds from regional sovereign wealth funds to invest in developed markets. 

Even with oil surplus money being invested in world-class infrastructure, inbound capital flows were thin on the ground outside traditional sectors such as real estate and oil and gas.  

Today, the UAE and Saudi Arabia are undergoing a major economic transition. Foreign investors have migrated to the region, with many family offices and hedge funds relocating to the UAE and regional head offices being set up in Riyadh, the Saudi capital. 

Capital market reform in both countries has been a major driver of higher financial activity.

In the UAE, recent regulatory changes have laid the groundwork for a more flexible listing and IPO structure.

A solid example can be seen in the first-of-its-kind dual listing of food company Americana in both Saudi Arabia and the UAE in late 2022. This listing highlights increasing depth, sophistication and maturity in both markets. 

Furthermore, direct listings have given issuers such as Alpha Dhabi Holding and Pure Health a more flexible and less rigorous path to list their shares on the Abu Dhabi Securities Exchange, which has led to an increased interest in Abu Dhabi-based companies from foreign investors. 

Total gross demand for the listing of Pure Health surpassed AED 265 billion. The institutional tranche was oversubscribed 54 times and the retail tranche 483 times.

Greater access to foreign investment also signals a shift towards a more market-driven economy

In addition, the Securities and Commodities Authority and the Registration Authority of Abu Dhabi Global Markets have enabled ADGM-based companies to list onshore. This has enabled US dollar-linked offerings and a wave of ADGM-based companies, such as Fertiglobe, Adnoc Gas and Adnoc L&S, to go public with governance managed under English law. 

What’s unique about the UAE is that these listings are not initiated by unicorns, SMEs or multinational companies but by mainly state-owned and family businesses. This reality supports the UAE’s vision of allowing foreign investors access to its economy and increasing foreign investment. 

Greater access to foreign investment also signals a shift towards a more market-driven economy. And, from the outside looking in, the heightened activity in Abu Dhabi and Dubai stands in contrast to a slowdown in traditional developed markets.

A combination of variables, including the Ukraine conflict, sustained high inflation, geopolitics and surging interest rates has created a challenging environment for capital market transactions globally in recent years.  

These factors have led the international investor community to look increasingly to the UAE as a market to establish, grow and list their businesses. 

Offering economic resilience and flexible policymaking, the UAE is set to grow as a hub for capital market transactions. 

Several novel structures have already emerged, among them special purpose acquisition companies and accelerated book building, which are expected to increase the liquidity pool and demand for UAE equities. 

Khalil Charles Massoud is chief investment officer at Alpha Dhabi Holding