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Dubai’s global bourse hopes end but options remain

Dubai’s global bourse hopes end but options remain

Dubai's global bourse ambitions dimmed; Single UAE bourse, MSCI upgrade key to recovery; More Borse Dubai asset sales unlikely in near term.

December 30, 2010 12:18 by

Dubai’s ambition to become an international equity hub may have been put on ice by its need to repay debts, but the Gulf Arab state could still become a magnet for global equity funds if the UAE consolidates its bourses and earns MSCI emerging market status.

In 2007, Dubai agreed to pay $4 billion for stakes in Nasdaq OMX and the London Stock Exchange, saying the buys would help the emirate draw in international liquidity and become the bridge between markets in the United States, Europe and Asia.

But, mired in debt and faced with looming repayment deadlines, Dubai has been forced to scale back those plans.

Borse Dubai, which has controlling stakes in local bourses Dubai Financial Market and Nasdaq Dubai, in December sold about half of its stake in exchange operator Nasdaq OMX for $672 million as both sides slowly detach from an alliance forged in pre-crisis days of cheap borrowing and leveraged takeovers.

Borse Dubai, owned by Dubai’s sovereign wealth fund, plans to use the funds to pay down debt as Dubai climbs out of an approximately $115 billion debt hole.

“Buying the LSE stake was part of Dubai’s strategy to become the regional financial centre and I think it has achieved this, but does it make sense to own the stakes in Nasdaq OMX and the LSE?,” said Mohammed Yasin, CAPM Investment’s chief investment officer. “I don’t think they’ve added value to Dubai’s markets.” Local turnover is languishing at six-year lows and many blue chip stocks are down more than 70 percent from their 2008 peaks, while the combined value of Dubai’s Nasdaq and LSE stakes has fallen by nearly half.

Besides raising much-needed funds, the Nasdaq stake sale may also reflect a shift in focus towards boosting local markets, rather than trying to piggyback onto global bourses.

“The (Nasdaq) sale is not necessarily an acknowledgment Dubai’s strategy hasn’t succeeded,” said Abdul Kadir Hussain, chief executive and fund manager at Mashreq Capital. “What hasn’t worked is having more than one exchange, with these not having enough scale to really matter in a global context.”

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