The Road to Dubai Riches

THIS MONTH, Dubai Week held its inaugural event in Beijing in a campaign to highlight bilateral ties and opportunities for Chinese investors in business, tourism, culture and lifestyle industries in the Emirates. A star studded cast of politicians, economists and businessmen showed up for the opening, as Beijing’s The Orange in Sanlitun South was transformed into an interactive experience providing visitors the opportunity to see, touch and taste Dubai in a fun-filled virtual world.

The transformation of The Orange epitomises the amazing evolution of Dubai, and the ability of its leaders to reshape the hot sands of the desert into a surreal metropolis. Last month I had the pleasure to spend time working in Dubai with my long-time friend and colleague from Jordan, Sari Traih, head of Arabia for Treasury Media Group. As we drove down the eight-lane Shaikh Zayed Highway trying to deal with lane management and the irritating voice of our GPS traffic guide, Traih spoke of Dubai’s rise from a Gulf sand trap on the shores of the Arabian Sea into a world city.

Just over two decades ago Dubai was a backwater perched on the edge of the Gulf enjoying a laid back lifestyle based on trade and fishing. One need only look at the before-and-after shots on the web to understand the astonishing transformation of this city. In one shot you see a few grimy apartment blocks and tracks in the desert, in another a ‘Blade Runner city’ of dazzling lights and massive skyscrapers. Perhaps only a city like Shenzhen, which went through a similar transformation, understands what it takes to build a new city from nothing almost overnight.

It is amazing what friendly, resource-rich neighbours can do for a city. The monster eight-lane Sheikh Zayed Highway cuts through the Dubai scape on the way to Abu Dhabi. On the side of the road, Burj Khalifa, the world’s tallest building, a blue needle points nearly a kilometre into the sand-strewn skies. Next, the Burj al Arab, one of the world’s most prestigious hotels sitting on the shores of the Arabian Sea, a perfect steal at only US$1,300 a night. A stone’s throw from the Jumeirah Beach Club winter enthusiasts can enjoy the frozen ski slopes of the Dubai Mall and play with penguins.

“Dubai has it all,” notes Traih, who boasts a family of 300 in the city, a veritable team of educated entrepreneurs that have moved from Jordan in search of the Holy Grail. “With the new Silk Road initiative in China, Dubai is eager to reach out and play a role on many fronts. The Chinese and Arabian cultures are so different, yet there seems to be an attraction between these two very old and well-heeled civilizations.”

Is it not strange how cultures can assimilate when commercial interests align? China became Dubai’s top trading partner in 2014 following a 29 per cent rise in activity to USD47.6bn, for the first time surpassing India, which had led the way since 2004. This strengthening of economic ties is driven by the 3,000 Chinese companies operating in Dubai and a community of over 200,000 Chinese, accounting for 10 per cent of the population. This dynamic will continue as China expansion in Arabia is a priority.

“Dubai Week marks an important step in the strengthening of relations,” said Li Xiaolin, president of the Chinese People’s Association for Friendship with Foreign Countries. “Dubai can play a key role as China looks to implement its One Belt, One Road strategy via the Silk Road Economic Belt and 21st Century Maritime Silk Road. We look forward to working with Dubai to create new friendships and foster dialogue, inspiring increased levels of knowledge transfer and collaboration in pursuit of common goals.”

Financial Powerhouse

When Min Fang, Senior Executive Officer of the Dubai branch of the Agriculture Bank of China (ABC), rang the market-opening bell last September to celebrate the listing of a RMB One billion (USD163m) “RMB Emirates Bond” on Nasdaq Dubai, it heralded a new era in cross-border finance between two of the world’s richest regions, the largest holder of foreign exchange reserves and the purveyor of Arabia’s resource riches.

ABC became the first Chinese enterprise issuing RMB bonds in Middle East, but it will not be the last to raise debt and equity from the Emiratis if Tahir Mahmood, Head of Debt Capital Markets and Alternatives, and Kam Mattu, Head of Equity Capital Market, at Nasdaq Dubai stock exchange have their way. I met them both on a recent whistle stop tour selling the merits of listing on Dubai in Hong Kong, and on the way to Beijing.

I sat in on a Nasdaq Dubai marketing meeting at the Hong Kong office of Sunwah International, advisor to the Silk Road Agriculture Fund of China, a project covered in my last column. Eying the work of the ABC in its RMB bond launch, Douglas Betts, CEO of Sunwah International, expressed interest in listing the new fund in Dubai and raising USD150m of Gulf money. The exchange seemed most supportive of the idea, noting that it would extend its support with introductions and market knowledge.

Nasdaq Dubai positions itself as the international stock exchange between Western Europe and East Asia. “Its unique market enables companies to list in the Middle East under an international brand name, with easy access to both regional and international investors,” comments Hamed Ali, Chief Executive of Nasdaq Dubai. “No other stock exchange in the world provides such comprehensive links both inside and outside the region.”

The standards in Dubai are comparable to those of leading exchanges in New York, London and Hong Kong. Its regulator, the Dubai Financial Services Authority (DFSA), is modelled on regulators elsewhere in the world, providing best practice oversight of listed companies. The exchange’s location in the Dubai International Financial Centre (DIFC) free zone places it at the heart of Dubai’s expanding capital market infrastructure. Two thirds of the shares in Nasdaq Dubai are owned by Dubai Financial Market (DFM) and one third by Borse Dubai.

With 59 listings and an equity market capitalisation of just USD81bn, less than many leading China-listed enterprises, Nasdaq Dubai has some way to go to become a household name in the global marketplace. Still, having just won the Middle East Award for Best Exchange 2014 from “Global Investor Magazine”, and USD24bn of equity capital raised, Dubai is hoping to accelerate its growth curve. Given the genesis of the China capital market, and its rise to become one of the world’s largest markets, anything is possible if Dubai plays its cards right and harnesses local liquidity pools.

One of the key cards in the capital markets deck is held by Tahir Mahmood, who hopes to help build Dubai into the largest Sukuk bond market. Sukuk is the Arabic name for financial certificates, but commonly refers to the Islamic equivalent of bonds. Sukuk securities are structured to comply with Islamic law and its investment principles, which prohibit charging of and paying interest.

Everyone is looking for a piece of the Sukuk market, and both Hong Kong and Singapore have tried their hand at attracting market participants. Total Sukuk issuance in 2014 reached USD114bn, and Dubai captured USD13.4bn of that flow, an increase of nearly 120 per cent over 2013, making the exchange one of the largest venues for Sukuk listings globally.

“We see this as a global market,” concludes Ali, noting that last September Hong Kong listed its inaugural USD1bn Sukuk on the exchange. John Tsang, Financial Secretary of Hong Kong, visited Dubai to ring the market-opening bell, to celebrate the listing. “It is this kind of activity that clearly shows the world that our investor base has an appetite for overseas issuers, and is willing to take on this exposure on a large scale,” Ali adds.

Traih has no doubt that Dubai has the desire to be a world leader. “With limited resources compared to the other members of the Emirates, Dubai has to be more creative and leverage off its advantages,” he says, adding “That advantage is its ability to provide the services and infrastructure of a financial center for the Arabic world. Clearly, the Chinese recognise this role and are eager to be a part of it,” Traih concludes.

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