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Sat 5 Sep 2009 04:00 AM

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Turbulent times

Kat Slowe talks to Jeff Singer, the CEO of Nasdaq Dubai, on how the stock exchange is dealing with falling share prices amid the global economic downturn.

Turbulent times
Turbulent times
Nasdaq Dubai introduced the UAE’s only equity derivatives platform in November.

Kat Slowe talks to Jeff Singer, the CEO of Nasdaq Dubai, on how the stock exchange is dealing with falling share prices amid the global economic downturn.

Jeff Singer, the CEO of Dubai's second bourse, NASDAQ Dubai, has faced a tougher year than most. When he first arrived in Dubai, back in the summer of 2008, the market was flush with liquidity and the exchange had just listed its biggest share yet, DP World, the Middle East's largest ports operator. The optimism was short lived.

"I got here on July 1 and I had some meetings with brokers and asset managers and the [only] questions they asked me was ‘why on earth would we ever invest in something outside of Dubai when we can hit 30-40 percent right here?' That line of logic lasted for about three weeks," shrugs the former senior vice president and head of international for the NASDAQ OMX Group, the world's largest exchange company.

DP World was meant to be the changing of the tide for the bourse, the Gulf's first stock market open to investors and issuers of all nationalities, which has struggled with low volumes in trading since its inception in 2005. But in the two years since its listing, the firm, which raised $4.96bn during its IPO, has lost 72 percent of its value.

In March, DP World chairman, Sultan Ahmed bin Sulayem, said the company would "evaluate all available options" to address its declining market value. In May, it was reported that private equity firm, Abraaj Capital, may buy a stake in DP World. If the deal did go through, the shares for the sale would come largely from the free float of stock traded on NASDAQ Dubai, significantly reducing the port operator's share float, which may force it to delist.

Although the deal remains clouded in doubt, Singer remains confident that the bourse is well-prepared: "It certainly wouldn't be positive when most of your stock is taken off, but we have contingency plans in other areas in terms of new listings and new products to buoy up the exchange for different sources of revenues."

Depa shares down

Singer is also working closely with Dubai-based Depa, the interior fit out company that is responsible for fitting out the interiors of the Burj Dubai. The firm's shares have fallen around 50 percent since last year and in August it cancelled more than 12 million shares that it had repurchased after saying its stock was undervalued. Depa says it plans to cancel subsequent repurchased shares on a quarterly basis.

Singer agrees that the firm's share price is undervalued, but argues that the company continues to trade better than other public companies of a similar size. "If we compared [Depa] to companies that have small floats and smaller shareholder bases it trades very well and, even when we compare it to all the companies in the most liquid markets of the world, it is in the top 40 percent," he says. "If [Depa] wants to increase the liquidity, the company needs to make a decision on expanding its shareholder base and the amount of shares available to trade."

Since his arrival, Singer has added a number of new products to the bourse, which he believes will act as an additional source of revenue. In November, the exchange introduced the UAE's only equity derivatives platform. Singer describes this market as an ideal way for the stock exchange to diversify its revenue base and adds it could be the beginning of an entirely new platform for the region. "This is an area that's right on the very beginning frontier of being able to do derivatives and I hope that we have a role in the overall unfolding of the markets," he says.Singer also cites the exchange's recent launch of the Middle East's first gold exchange-traded commodity as a way of further diversifying its core business. "We are really bigging up that market [and] we are looking for new asset classes and the one we've just released is a Sharia-compliant gold product that actually tracks the physical [commodity]," he says. "So you can buy gold and sell gold and if you truly want to have the physical you can go and get it. I can see that happening with other commodities as well," he adds.

Then, of course, there is the exchange's decision to allow short selling, which enables investors to sell stock in anticipation that the price will fall, so that the investor can then buy back the stock at a lower price. While the practice has been blamed for forcing prices down in times of market stress, Singer argues that it has increased liquidity on the bourse. "Investors want to be able to not only purchase the shares, they also want to hedge their positions and hedging is a very credible point."

Singer adds that the bourse has taken a ‘bad rap' for its liquidity, but in general says it remains good. "I think people were upset about the liquidity; they call it liquidity, but it's really just the price of the stocks. When DP World IPO'd, the price went down and that was a new experience for the investors here in Dubai. Because the MENA market is smaller than some of the bigger markets, we are still seeing the growth. Generally liquidity is pretty good."

While Singer hopes that all of these will further diversify the bourse's source of revenues, he is also counting on renewed interest from private companies looking to list on the exchange when the market picks up. Traditionally NASDAQ Dubai has proved attractive for institutional investors while the Dubai Financial Market has attracted retail investors. The bourse is already canvassing and has seen some positive signs, but Singer believes the market won't see anything come on line until the first half of next year.

"Now we are into the third quarter, we are starting to see signs that companies want to go public, but they are saying ‘maybe Q4, probably Q1 and Q2 next year,'" he says. "In 2010-2011 there will be many companies [with] fund raising requirements that won't want to do debt. They will have been able to conserve cash [and] push off their financing by maybe take short term loans, but at some point they will need to access the capital markets and I think some of those companies will start to come out in 2010."

In July, Borse Dubai, the majority owner of NASDAQ Dubai and the Dubai Financial Market, announced it planned to integrate trading and clearing systems on the two exchanges. Singer says that this will not only lower costs, it will also create more liquidity in a market. "We are aggressively seeking to create the largest liquidity pool we can in Dubai with the least cost for each of the two companies," he says.

While the move might look like a step closer to a merger, the significantly different regulatory systems that each have in place, will make it difficult for the foreseeable future. NASDAQ Dubai, for example, uses global regulatory standards, which do not require its listed companies to be locally owned. Singer argues that it would be wrong for Middle East stock exchanges, some of which have only been established in the last 10 years, to jump on the bandwagon of other exchanges around the world and merge, without first having the time to incubate.

"I think that there are things that the exchanges could do together that allow them to retain their sovereignty and allow them to keep their identity as a market, but create a greater and more common liquidity price," he says. "Then you might see a few mergers here and there [and] a few partnerships that are more aggressive than others. I think to move it faster, given the unique culture here, [would] probably be a mistake."