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Abu Dhabi’s stock market has long been viewed as a small Gulf exchange that has received little attention outside the region — a reflection of the relatively small private sector in the oil-rich emirate, which has long has been dominated by the state.
But in less than four years it has nearly quintupled in value to more than $650 billion, largely driven by the extraordinary rise of one stock, the International Holding Company.
Under the leadership of Sheikh Tahnoon bin Zayed al-Nahyan, one of the most powerful figures in the United Arab Emirates, IHC has transformed from a $200 million company with dabbles in fish farms and real estate to one with more than 400 subsidiaries and A conglomerate with a market capitalization of $236 billion – bigger than Walt Disney, McDonald’s or L’Oreal.
Adding eight listed subsidiaries (including Alpha Dhabi with a market capitalization of $65 billion), its weight increases to $324 billion, or half of the market.
The shift has confounded bankers and analysts, who have raised concerns about transparency and ambiguity between the private sector, the state and the ruling family, at a time when Abu Dhabi is seeking to use its oil windfall to boost its status as a regional financial institution. reputation of the center.
“Five years ago, ADX’s largest market capitalization – then First Abu Dhabi Bank and Etisalat – was known for its transparency,” said a market analyst. “Now [two of] The largest stock IHC and Alpha Dhabi are black holes. . . The market is not as transparent as it used to be. “
Even the dynamics of brokers trading on the ADX have been turned upside down, with another IHC-owned company, International Securities, now accounting for more than half of the market’s trading value.
The expansion of the IHC “appears to be a major setback for the institutional environment, which previously appeared to be more transparent in the context of broader FDI competition in the region,” said a Western academic who has advised Gulf governments on governance issues. express.
closed loop?
Although IHC and Alpha Dhabi are the largest and third largest companies on the ADX by market capitalization, neither is included in MSCI’s UAE index. MSCI’s criteria for including stocks in its indexes focuses not only on size, but also on how freely a company’s shares are bought and how easy it is to trade.
Analysis of trades in IHC stock shows that it is often bought and sold in large, multiple trades of a similar number of shares at the same time. Analysts say such deals appear to be pre-arranged and it could be challenging for investors to buy IHC shares.
Simultaneously traded large batches of the same number of shares make up the majority of IHC trades. Such deals accounted for two-thirds of IHC deals from 5 January 2020 to 27 January 2023, according to FT’s analysis of ADX data. By comparison, the pattern was observed in just 8% of transactions in Abu Dhabi Commercial Bank and 3% in Etisalat, two other ADX-listed large-cap stocks.
IHC and Alpha Dhabi have highly concentrated ownership with a limited percentage of shares available for trading. IHC is 62 percent owned by the Royal Group, an entity controlled by Sheikh Tahnoon, and has about 24 percent free float, IHC told the Financial Times late last year. Its 2021 annual report said 18 shareholders own 96.7% of its shares. Alpha Dhabi reported that same year that 19 shareholders controlled more than 98% of its shares.
Foreign investors – more recently often U.S. citizens or Emirati expatriates – form a tiny share: According to ADX data, 6% for IHC and 3% for Alpha Dhabi.
There is no sign of illegal activity at IHC, which last week pledged $400 million to Indian billionaire Gautam Adani or his affiliates, but their expansion and activities have left bankers and analysts scratching their heads .
“If you want to reach them, you can’t because you don’t have access to their stock — that’s ridiculous,” the market analyst said. “It begs the question: Why did this happen? In a way it’s nobody’s business, but it does cast a shadow over the market. It changes character in some ways, but in others Not at all because the event seems to be for friends and family. It’s not for the whole world.”
IHC said its shares “come to market at a price for anyone wishing to invest,” adding that it “provides information about our organization openly, truthfully and directly, while adhering to the governance and compliance standards of market regulators”.
ADX said it “operates in accordance with the highest principles of corporate governance and transparency,” adding that listed companies “must adhere to a code of full disclosure that meets global standards.”
Initial Public Offerings and Asset Transfers
State influence is never far away. Among the 13 companies listed on ADX since 2020 is Abu Dhabi Ports, which is majority-owned by ADQ, the sovereign investment vehicle that also controls ADX and has Sheikh Tahnoon as chairman.
Other recent IPOs known to foreign investors include Borouge, a joint venture between state oil company ADNOC and Borealis, and satellite communications firm Yahsat, which is controlled by another state investment fund, Mubadala.
But IHC and its subsidiaries have seen the most spectacular growth through massive asset transfers from affiliates, with IHC’s assets ballooning from $215 million in 2018 to $54 billion by September 2022.
Alpha Dhabi’s assets jumped from $1.5 billion in 2020 to nearly $13 billion in 2021, the year it went public, and the company reported a surge in profit from $59 million to $1.4 billion, with revenue quadrupling to $5 billion. The number of its subsidiaries has increased from 16 to more than 100.
The transfer of Royal Group assets, many for a nominal fee of one dirham, has been a key driver of its growth, IHC said.
Alpha Dhabi – formerly known as Trojan – was previously wholly owned by the Royal Group. In April 2021, 45% of the shares were transferred to IHC with “zero consideration” and IHC currently owns 86% of the company. More than 40 companies have been transferred from the Royal Group, most of them with a nominal value of AED 1 each.
The communication company Multiply, which was previously wholly owned by the Royal Group, was also transferred to IHC for free on April 1, 2020.
It now owns driving schools, wellness companies, beauty salons and a 7.3% stake in Taqa, a utility controlled by ADQ and the ADX’s second-largest stock.
Assets grew from $26.6 million in 2020 to more than $3 billion the following year, the company said. Multiply has acquired at least three companies for nothing in 2021: Pal Cooling, Emirates Driving School and cosmetics group Bedashing.
Listed in December 2021, Multiply has a market cap of $13 billion and is one of the 10 largest stocks in the MSCI UAE Index.
Good News for Brokers
Along the way, Abu Dhabi-based brokerage International Securities, acquired by IHC in November 2019, has also experienced phenomenal growth – rocketing to the ranks of the top brokers serving ADX.
Between 2018 and 2020, it processed 8% of transaction value and 9.8% of transaction volume. It now handles 64.2 percent value and 45.3 percent volume, according to ADX data. Analysts said the data suggested it was buying and selling shares in large volumes on the ADX — a pattern that fits with trading in IHC stock.
According to IHC’s 2021 annual report, the broker’s assets grew from $186 million in 2019 to $1.2 billion in 2021, while revenue soared 216%.
Considering the number of IPOs, international securities “have seen rapid and organic growth,” IHC said. [16] They have been facilitating since 2020,” adding that the brokerage has attracted 25,000 “active clients.”
Steffen Hertog, a Gulf expert at the London School of Economics, said the corporate network reflected “the Al Nahyan family’s role in Abu Dhabi’s economy” compared with Dubai’s ruling Al Maktoum family. continue to exist”.
“That’s not to say that the distinction between government and family businesses is very sharp in the latter,” he added. “But with fewer players in the ruling family, there is relatively more room for large non-royal private groups.”
Data Visualization by Chris Campbell and Patrick Mathurin
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