What does the future hold for DIFX?
DIFX' worst nightmare has come true. Future Pipe, a developer of fiberglass pipes, has withdrawn its IPO, citing 'global market conditions'.
The exchange had received a major boost earlier this year when Future Pipe and Depa, two successful, family-owned businesses, chose to list on DIFX. Depa listed first but has seen its stock price erode, giving Future Pipe management cold feet.
This is not the first DIFX listing to have been cancelled - in 2006 Oger Telecom and this year Nano Dynamics also withdrew at the last minute, citing global market turmoil. Meanwhile, a number of IPOs have listed on DFM, Saudi, Muscat and Amman exchanges.
Not everybody thinks it is DIFX's fault. "It is a fallacy to blame a marketplace for the woes of a listed stock after its IPO," says Masoud Gilani, Executive Director, AB Capital."You simply cannot blame DIFX for the issues related to DP World or DEPA after their respective IPOs."
Any 'irrational exuberance' on the part of issuer and its financial advisor, will soon or later display itself in poor post-listing trading and this, to the detriment of the stakeholders: the issuer, the retail investor, the institutional investor and yes, to the exchange.
It behooves all of us as investment bankers, to value our clients' companies objectively and rationally and furthermore, educate our clients on the fundamentals of their companies' valuations".
Many companies have been flocking to the more liberal DIFX as ESCA laws, which govern the Dubai and Abu Dhabi stock markets, force companies to float at least 55% of their shareholding. Many analysts expect the new UAE Companies Law dealing with IPOs to reduce that percentage, but until such time companies felt DIFX was an interesting alternative. The other key question is whether the new Companies Law - which could boost DFM and ADSM listings - make the DIFX even more unattractive as an exchange.
That could well happen, given the red numbers on the exchange's trading board. Depa stock has fallen 12% in the first eight days of trading on the exchange."It's a mixture of many factors," says Wadah Al Taha, a senior financial analyst.
"But the number one reason is there was not enough awareness in the market. The company is not familiar to local, regional and international investors and in an emerging market there needs to be more understanding of the investor culture. Secondly, the pricing was not attractive and thirdly, the timing of the listing was not well studied."
It's a pity given that Depa's fundamentals are quite strong and it operates in the interior design sector, which has blossomed on the back of a strong construction industry.
Analysts say a DFM-listing could have saved the company's stock slide. "A dual-listing agreement between DFM and DIFX will create synergy between the markets and also allow DFM brokerage firms to trade on DIFX without an additional license," says an analyst.
So what can the DIFX do to raise its profile?
The exchange had received a major boost earlier this year when Future Pipe and Depa, two successful, family-owned businesses, chose to list on DIFX. Depa listed first but has seen its stock price erode, giving Future Pipe management cold feet.
This is not the first DIFX listing to have been cancelled - in 2006 Oger Telecom and this year Nano Dynamics also withdrew at the last minute, citing global market turmoil. Meanwhile, a number of IPOs have listed on DFM, Saudi, Muscat and Amman exchanges.
Not everybody thinks it is DIFX's fault. "It is a fallacy to blame a marketplace for the woes of a listed stock after its IPO," says Masoud Gilani, Executive Director, AB Capital."You simply cannot blame DIFX for the issues related to DP World or DEPA after their respective IPOs."
Any 'irrational exuberance' on the part of issuer and its financial advisor, will soon or later display itself in poor post-listing trading and this, to the detriment of the stakeholders: the issuer, the retail investor, the institutional investor and yes, to the exchange.
It behooves all of us as investment bankers, to value our clients' companies objectively and rationally and furthermore, educate our clients on the fundamentals of their companies' valuations".
Many companies have been flocking to the more liberal DIFX as ESCA laws, which govern the Dubai and Abu Dhabi stock markets, force companies to float at least 55% of their shareholding. Many analysts expect the new UAE Companies Law dealing with IPOs to reduce that percentage, but until such time companies felt DIFX was an interesting alternative. The other key question is whether the new Companies Law - which could boost DFM and ADSM listings - make the DIFX even more unattractive as an exchange.
That could well happen, given the red numbers on the exchange's trading board. Depa stock has fallen 12% in the first eight days of trading on the exchange."It's a mixture of many factors," says Wadah Al Taha, a senior financial analyst.
"But the number one reason is there was not enough awareness in the market. The company is not familiar to local, regional and international investors and in an emerging market there needs to be more understanding of the investor culture. Secondly, the pricing was not attractive and thirdly, the timing of the listing was not well studied."
It's a pity given that Depa's fundamentals are quite strong and it operates in the interior design sector, which has blossomed on the back of a strong construction industry.
Analysts say a DFM-listing could have saved the company's stock slide. "A dual-listing agreement between DFM and DIFX will create synergy between the markets and also allow DFM brokerage firms to trade on DIFX without an additional license," says an analyst.
So what can the DIFX do to raise its profile?
"I doubt this is the right time for DIFX to go on a roadshow," says Al-Taha. "High profile, semi-government listings with international reputation - such as Emirates Airline - will help them. They should also look to target high-profile regional companies." /Zawya/
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