By Courtney Trenwith
NASDAQ Dubai is preparing to launch first equity market in Middle East dedicated to small businesses
NASDAQ Dubai is preparing to launch the first equity market in the Middle East dedicated to small and medium-sized businesses (SMEs), potentially giving flourishing entrepreneurs access to millions of dollars to help them grow.
In the first serious step towards an SME equity market since the idea was mooted in 2009, an advisory group has been established to discuss potential regulatory models and the ideal trading framework.
It will also eventually work to attract issuers from the Middle East and around the world to carry out initial public offerings (IPOs) and other listings on NASDAQ Dubai.
About 72,000 SMEs generate 40 percent of Dubai's gross domestic product, according to NASDAQ Dubai.
But CEO of Dubai SME, the government agency established to develop the sector, Abdul Baset Al Janahi said businesses struggled to reach their full potential without financial backing, which was presently difficult to get from banks.
“Many SMEs are held back from achieving their natural growth path simply by lack of capital and an IPO on NASDAQ Dubai offers an excellent route to expansion for the right companies,” Al Janahi said.
"The creation of an active equity market will act as a powerful driver for the continued growth of the SME sector, whose development adds critical strength to Dubai's economy and generates high quality employment opportunities for its people.
“Internationally, Dubai will also be better positioned as a hub to attract more entrepreneurial, high-growth SMEs to be based here, adding greater value to the economy in the longer term."
The idea of an SME equity market was included when Dubai SME launched the SME sector development strategy in 2009.
Since then, the Dubai Financial Services Authority - the NASDAQ Dubai regulator - has reduced the minimum market capitalisation for an IPO from US$50m to US$10m.
However, NASDAQ Dubai CEO Hamed Ali said many high quality SMEs were still starved of the capital needed to grow.
A market for SMEs and high-growth companies on NASDAQ Dubai would most likely have fewer regulatory benchmarks, making it easier for companies to list without, for example, having existed for a minimum number of years.
Ali said it also would benefit regional and international companies wanting to increase their visibility in Dubai and to expand their activities in other countries.
KPMG partner and head of private equity Vikas Papriwal said an SME equity market was a good idea but there were numerous challenges, particularly if it was to operate across the region.
“It's a very interesting concept but a very difficult one too because how do you have a market that's regulated across the GCC?,” Papriwal said.
“If you can get a platform across the entire GCC, it's an excellent idea, but where are the investors going to come from, how do you ensure regulation is spanning across [the region]? There are those challenges.
“It is needed but the regulators will need to come together to get it to work.”
Papriwal said an SME equity market would add depth and breadth to the sector. “A lot of momentum builds around it; a lot money [and] investments can flow through,” he said.
“More importantly, for the companies it's massive because all of a sudden people will want to have GCC-wide ambitions. If there's a mechanism of educating the market of these companies automatically they get access to those markets if they wanted to.”