The launch of the new market would ease the bar of entry
for the region's SMEs and give them the opportunity to tap growth capital, said
DIFC chief economist Nasser Saidi.
He was addressing the Gulf Venture Capital Association
conference in Dubai, which was organized to release the 4th annual Private
Equity & Venture Capital in the Middle East report.
The private equity industry needs a second-tier market
where they can list smaller companies with revenue of $20 million to $80
million and which has less stringent listing rules, said Saidi.
Private equity firms in the Middle East and North Africa
raised $1.25 billion in the first quarter of 2010, an 18 per cent increase over
the whole 2009, as regional economies recovered and investor appetite returned,
according to the report.
It is estimated that up to $10 billion committed to
private equity funds are yet to be invested, although some funds are expected
to release their investors from their future commitments, it added.
"Private equity has regained its positive momentum
despite the results of 2009. The outlook for private equity in 2010 and beyond
remains positive as the economic fundamentals of the region have not
changed," said Imad Ghandour, chairman of GVCA's Information Committee.
"The story in the region continues to remain one of
growth and economic stability, and private equity funds will have ample
opportunities to invest profitably in the coming few years," he said.
The existing equity markets in the Middle East are geared
for bigger companies, although about 95 percent of the firms operating in the
region are small- and medium-sized, said Saidi.
Discussions are being held with a number of private
equity firms and market practitioners that may use the second-tier market
although there is no timeframe yet to set it up, he said.
A second-tier market would remove some of the financial
and regulatory barriers to listing that put off smaller companies from initial
public offerings on local markets, where companies have to float 55 percent of
their shares at a price dictated by the authorities, rather than via a
book-building process.
"It is encouraging to see that private equity
investors are getting back to basics by channeling much needed funds into parts
of the economy that received little attention during the boom years. Investing
in sectors that serve the needs of the masses, such as health care, education
and utilities, is important for the common prosperity of the region," said
Ihsan Jawad, CEO, Zawya.
Commenting on the recent improvement in market
sentiments, Vikas Papriwal, KPMG's UAE country head of private equity and
sovereign wealth funds, said: "We have undoubtedly seen an increase in
activity in the market."
The plan for a new sub-market comes as DIFC-based
NasdaqDubai and Dubai Financial Market, the government-administered domestic
bourse, have linked their trading platforms and officials are working on a
merger between the stock exchanges of Dubai and Abu Dhabi.
