Gulf News - 30/5/2006

The governor of the UAE Central Bank has proposed that a maximum limit be set on subscription of new public issues to solve some of the problems witnessed recently in the UAE stock market.

Addressing a seminar organised in the capital yesterday by the Abu Dhabi Chamber of Commerce and Industry, Sultan Bin Nasser Al Suwaidi said the move would provide a safety valve so that share prices do not become overvalued during the initial offer period.

The move would also prevent oversubscriptions by 400 times or even more.

"The bidding for bigger quantities or higher prices can take place in the secondary market, which is more realistic," he said.

He also recommended a limit on the flow of "hot money" into stock markets.

"This foreign money flows quickly into the market, then it flows out as quick, and accordingly negatively affecting the share prices," Al Suwaidi said.

"There should be a law to limit foreigners' stake in local companies, because if this money is flowing to the country as deposits we will be able to deal with it. The problem arises when it flows in and out of the stock markets."

Finding fair value

Al Suwaidi further suggested an independent entity to evaluate new shares before listing.

"This entity should be free from any pressure, and accordingly it can assess the fair value of any share without being affected," he added.

Salah Al Shamsi, Chairman of the Abu Dhabi Chamber of Commerce and Industry, repeated an old suggestion of establishing a stabilisation fund to play the role of the market maker, and that the private and public sector should participate in that fund.

"This is a very common practice in the more mature markets, and most recently it has been applied in Hong Kong, as it serves as a market saviour, and on the other hand it reaps the benefits when the share prices pick up," he said.

Abdullah Al Turaifi, Director-General of the Emirates Securities and Commodities Authority as well as Hareb Al Darmaki, Chairman of Abu Dhabi Securities Market, strongly supported this solution, and suggested that real steps should be taken to establish the fund.

Al Turaifi said that the Emirates Securities and Commodities Authority was in the process of revising the regulations of markets with the help of specialised international institutions.

He also said that certifying financial analysts and fund managers must be revised, as they do affect the market, a role that cannot be given to unqualified people.