DUBAI, 21 March 2006 — The United Arab Emirates is considering limiting subscriptions to initial public offerings to allow for a broader distribution of shares, an Economy Ministry official said on Sunday. Current rules allowing any investor to subscribe to the entire value of an IPO have contributed to heavy oversubscription rates, said Hussein Ghanayem, the ministry’s legal adviser.
Newspapers on Sunday quoted UAE Central Bank Governor Sultan Nasser Al-Suweidi as saying that limiting share allotments would prevent massive oversubscriptions, which have drained liquidity from the market and been blamed in part for a stock market downturn.
“Companies must set a limit for subscriptions in public offerings so that the small investor gets an equal chance and IPOs do not get heavily oversubscribed,” The Gulf News quoted Suweidi as saying in Abu Dhabi.
Ghanayem said the ministry was considering imposing a maximum subscription limit in a new draft of a law regulating UAE companies, which he said could be approved within months. “The maximum limit is in order not to make these companies dominated or controlled by a small group of shareholders,” he said.
Gulf IPOs were on average 70 times oversubscribed in 2004-2005. Two IPOs earlier this month in the UAE exacerbated selling trends on local stock markets as investors dumped shares to raise cash for subscriptions.
A 550 million dirham ($149.8 million) IPO for UAE mortgage lender Tamweel was oversubscribed nearly 500 times and pulled much-needed liquidity from stocks in Dubai and Abu Dhabi, which sank last week in a sharp region-wide correction. After the correction the UAE said it would regulate IPOs and raise the ceiling for bank loans against shares to 80 percent from 70 percent. The government also said it would seek to speed up the return of funds from IPO subscriptions to investors to help ease a liquidity shortage.
In another development yesterday, Dubai Islamic Bank said it was delaying a one billion dirham ($272.3 million) rights issue at the request of the UAE Economy Ministry.
“Considering the current market conditions in the country, and out of a desire to set the right foundations for solid development ... please postpone the invitations for shareholders to subscribe to the capital increase share issue,” a bank statement quote the ministry as saying.
The ministry said a new date would be set later for the rights issue that had been scheduled to open on March 20. The bank had said on Saturday it was extending until April 10 the subscription period of the rights issue which was to have ended on March 30.
