UAE, GCC states move to sell stakes in govt enitities to further develop debt, equity markets

Stake sale to create revenue generation opportunities for governments, and also increase market transparency


Waheed Abbas

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Published: Tue 22 Mar 2022, 6:20 PM

The UAE and other Gulf states are accelerating the sale of minority stakes in government-related entities (GRE) which is a positive trend and help further develop the debt and equity markets, global ratings agency S&P said on Tuesday.

Timucin Engin, a primary credit analyst at S&P, said stake sale will create revenue generation opportunities for individual governments, and also increase market transparency due to disclosure requirements for issuing entities.

He expects these GRE sales to be broadly credited neutral for sovereign creditworthiness in the GCC.

“We do not expect revenue generated by the share sales to materially improve the public finances of the respective governments. We view the GRE sector as generating only limited contingent liabilities for their respective governments in most of the region. We believe that, with the exception of Oman, GCC governments have sufficiently strong balance sheets, in relation to the level of outstanding GRE debt, to absorb financial distress in the GRE sector, without materially worsening their overall fiscal positions,” Engin said in a note released on Tuesday.

Highlighting the advantages of bringing in new private investors, he said the new shareholders bring expertise and new technologies, along with their equity injections, hence the respective economies could benefit from increased productivity.

The Dubai Government has announced a plan to divest stake in 10 GREs and list them on the local bourse in order to boost liquidity at the local equity market. The Dubai Electricity and Water Authority (Dewa) is the first government entity to announce the listing of its shares on the Dubai Financial Market. The utility services provider will offer 3.25 billion shares, which is equivalent to 6.5 per cent of its overall worth.

In addition, the government-backed oil giant Adnoc has also floated some of its subsidiaries on the Abu Dhabi Securities Exchange. Earlier, almost $30 billion were raised via the sale of 1.73 per cent of the shares of Saudi Aramco in December 2019 which was transferred to the government's Public Investment Fund to be invested both locally and overseas.

S&P expects government support to be forthcoming not only to entities controlled by the government but also to private sector banks.

“This is one of the reasons why regulators in the region have been relatively slow to adopt recovery and resolution regulations. Over the past few years, we observed a trend of GCC government shareholders merging their assets to form larger banks,” the global rating agency said.

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