Nasdaq Dubai, the emirate's international stock exchange, is gearing up for a push into the market for small and medium enterprises (SMEs), with ambitions to become a global centre for high-growth companies.
The move, planned to be implemented this year, is the latest initiative by Dubai financial institutions to service the SME market, which many experts regard as a key engine for economic growth.
The strategy aims to attract initial public offerings (IPOs) by SMEs and trade their shares on a parallel market to the main Nasdaq Dubai board. Set up in 2004 as the Dubai International Financial Exchange, it has had only limited success in attracting big international corporate offerings.
"High quality SMEs are vital to the expansion of the UAE's economy, but many are starved of the capital they need to grow," said Hamed Ali,the acting chief executive of Nasdaq Dubai. An IPO "on Nasdaq Dubai will enable them to raise the funds they need".
The more than 72,000 smaller businesses in Dubai contribute more than 40 per cent to Dubai's GDP, the exchange estimated. It has set up an advisory group, consisting of banks, accounting and legal firms and investor-relations consultants, to make recommendations about the structure of the proposed market.
The Dubai Financial Market, which shares a common platform with Nasdaq Dubai, and the Dubai Financial Services Authority (DFSA), its regulator, were made aware of the initiative before yesterday's announcement.
Involvement of the DFSA will be crucial to the initiative's progress. Mr Ali said that once the advisory group had refined its proposals, consultations would begin with DFSA officials as part of an "interactive process" to adapt listing and trading regulations to make them more appropriate for SMEs.
Under current market rules, companies listing on Nasdaq Dubai have to provide a full prospectus prepared by an investment bank, float a minimum of 25 per cent of their capital and have a market capitalisation of at least US$10 million (Dh36.7m), reduced last summer from $50m.
There are also likely to be calls for a new pricing structure from professional advisory firms. "For an SME, going public should not be an expensive or time-consuming process," Mr Ali said.
The move has the support of Dubai SME, the agency of the Department of Economic Development - a member of the advisory group. Abdul Baset Al Janahi, the chief executive of Dubai SME, 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."
Mr Ali said the initiative was not intended to replace its strategy of attracting international companies and institutional investors. "We are not going to dilute the main market, this will be a separate board. It will not divert us from our main aim of attracting big companies."
The new SME market will seek IPOs from the Arabian Gulf region and from the rest of the world. Interest had already come from western and Asian companies, one source said. "It's really for any company that does business in the region," he added.
Jeff Singer, the chief executive of the DIFC Authority, said: "It's a good proposal. The notion of an SME market is an idea whose time has come."
Mohammed Ali Yasin, the managing director of National Bank of Abu Dhabi's brokerage arm, said Nasdaq Dubai had been "trying to find a niche for itself ever since the crisis that will justify attracting investors and companies to list on the exchange.
"Ever since the pullout of some companies and IPOs pulling out in the last minute, it has been very difficult … These are all attempts to find a niche. Will it succeed or not? That is the question."
Several big Dubai financial institutions, such as Shuaa Capital and Emirates NBD, have recently launched initiatives to provide capital for SMEs.
Just Falafel, the Dubai-based, fast-food outlet that opened its first store in London this month, has been considering a share sale for the past two years. "There is a very big market for listings for SMEs because they need growth capital more than anyone else," said Fadi Malas, the chief executive of Just Falafel. "It is much more exciting for investors to invest in growth companies than to invest in established companies that have reached their peak."