IHC also makes money from trading on the exchanges on which it is listed.
The rulers of the United Arab Emirates may soon receive the honor they have always dreamed of. Their once sleepy stock exchange will become home to companies valued at $1 trillion. The huge success – as of the end of March, the market was ranked 17th globally, ahead of Brazil and Spain – relies on the Abu Dhabi Securities Exchange, run by the UAE’s largest and richest city-state, to recently top the list Performance.
But faced with the defining characteristics of the Abu Dhabi market, global investors can’t help but flock to it. Sheikh Tahnoon bin Zayed Al Nahyan, a member of the royal family, is one of the two deputy rulers of Abu Dhabi, the UAE National Security Advisor, and the brother of the President of the UAE. Controls nearly every aspect of the company’s business. As of March 31, the sheikh’s companies or companies he oversees had at least a 65% weighting in the benchmark FTSE ADX composite index.
The largest is his International Holdings Co. (IHC), which has investments in everything from Rihanna’s lingerie line to Elon Musk’s SpaceX. Since 2019, IHC’s stock price has increased more than 400-fold. The sprawling conglomerate, which traces its roots to a fish-farming company, is now valued at nearly $240 billion, more than the Walt Disney Co. or McDonald’s Corp.
IHC also makes money from trading on the exchanges on which it is listed. It has the most active brokers on the Abu Dhabi Stock Exchange. Meanwhile, the Emirates ADQ Fund, chaired by Sheikh Tahnoon, oversees the exchange itself.
The Chief’s influence goes even deeper. He is the de facto business leader of Abu Dhabi’s ruling Al-Nahyan family, the world’s richest. He manages about $1.5 trillion, much of it through the sovereign funds he heads. It’s as if one man leads two-thirds of the companies on the New York Stock Exchange and the S&P 500.
Many bankers, investors and economists say the unusual structure of the Abu Dhabi market poses challenges for global investment managers looking to profit as its main index has nearly tripled since April 2020 , making it the best-performing major market in the world during the same period. It may be difficult for outsiders to get a piece of the pie, as UAE nationals and companies own and hold large shares; those who do manage to do so wonder whether they will be treated the same as insiders.
Stéphane Hertog, an associate professor at the London School of Economics who studies the region, said: “Although Sheikh Tanu is neither a ruler nor a crown prince, the interconnectedness of his assets and the concentration of control are even by Gulf standards It’s also unusual.” These connections can create economic advantages by coordinating national investors and government agencies, he said. “They also raise questions about whether there is a level playing field with private competitors and how the interests of minority shareholders are protected.”
In a rare interview, IHC CEO Syed Basar Shueb said the company, which will have access to all those who join, has directed its brokerage operations to work with global investors. “I don’t understand why people complain that it’s not open to foreigners,” he said. “Foreign investors always go to traditional brokers who can’t deliver. I have to make sure I get business for my company.” Government representatives and spokespersons for Sheikh Tanu’s other businesses either declined to comment or did not answer questions.
The sheikh increasingly embodies the UAE’s global economic aspirations. He has used his holdings and position to make acquisitions, such as a stake in the Mopani copper mine in Zambia, while also pushing to boost the domestic economy. The UAE’s sovereign wealth fund and business hub reflects the ruling Al Nahyan family’s drive to diversify away from oil. Oil was discovered in Abu Dhabi in the 1950s and is the basis of its wealth. The family is seeking to turn the emirate into a financial hub, where financial tycoons such as Ray Dalio have purchased beachfront penthouses.
The UAE has long used its gaudy record to underline its international importance. It’s home to the world’s tallest building (Dubai’s gleaming Burj Khalifa) and the world’s fastest roller coaster (Abu Dhabi’s Formula Rossa, which hits 240 kilometers per hour in 4.9 seconds). The stock market reflects the ambitions of the Al Nahyan family. Members expect its rising value to attract international capital and encourage local investors to keep their money at home, according to people familiar with the matter. The people spoke on condition of anonymity to discuss the ruler’s strategy.
Since 2020, the total value of companies listed on UAE exchanges has almost quadrupled to $950 billion as of the end of March. (At $3 trillion, Saudi Arabia remains the region’s largest market.) Abu Dhabi’s benchmark index is at $711 billion. Much of the rest comes from its smaller neighbor Dubai.
The UAE said it will allow foreigners to own 100% of businesses in various industries in 2019. Since late 2021, governments have sold stakes in state-owned enterprises to promote exchanges and attract investors. Dubai Electricity and Water Authority PJSC raised $6.1 billion in its initial public offering, attracting buyers including BlackRock, Vanguard Group and Fidelity Investments. Rami Sidani, Head of Portfolio Management and Frontier Investments for the Middle East and North Africa at Schroder Investment Management, said: “Capital markets have always acted as conduits, supporting ambitious privatization plans. Investments from international markets are channeled into the local economy.”
An IPO associated with Sheikh Tahnoon seems like a surefire way to make money. Five of the 10 best-performing IPOs in the UAE since the start of 2021 have come from companies within his empire or controlled by the sovereign wealth funds he oversees. Shares of his geospatial and data analytics company Bayanat AI Plc more than tripled on its debut in 2022, though they later gave back some of those gains.
Wall Street banks organize fund managers to travel to the region to meet potential IPO candidates, in contrast to regional companies seeking to list in London or New York. But people familiar with their thinking say the difficulty of getting a decent allocation in an oversubscribed IPO has been a source of frustration for international investors, and they often don’t even get many of Sheikh Tahnoon’s shares.
“In some cases, we believe the purpose is to attract foreign investors and promote higher levels of international engagement,” said Salah Shamma, head of Middle East and North Africa equity investments at Franklin Templeton in Dubai. “ In other cases, it looks more like a redistribution of wealth within the local investor base.” IHC CEO Shueb said priority should be given to Emirati investors: “Local demand and local institutional demand is very high. We cannot provide beyond what we have available.”
Global emerging market funds that actively pick stocks have increased their investments in the UAE in recent years, but the emirate’s shares remain slightly undervalued, according to data from Copley Fund Research. National owns about 90% of IHC stock, and stock analysts tracked by Bloomberg do not cover the company. Shueb said he won’t pay analysts to cover IHC, but once they fully understand it, they will start doing it.
Locals also own majority stakes in Dubai Electricity and Water Authority and oil services provider Adnoc Drilling Co PJSC, making it harder for foreign institutions to execute large deals.
James Donald, head of emerging markets at Lazard Asset Management LLC, said “liquidity is very, very important” and that it still has a long way to go in the UAE. According to Donald, the Middle East is also one of the most difficult regions for investors to obtain information about the companies they want to trade.
For example, the financial disclosure section of last year’s IPO prospectus for Sheikh Tahnoon-related PureHealth Holding PJSC, which owns healthcare centers, was only five pages long and contained no management discussion of the results.
“The international standard IPO process allows for a more thorough education for investors,” said Andree Chakhtoura, head of investment banking for the Middle East and North Africa at Bank of America. He was speaking generally and not specifically about PureHealth.
Shueb said IHC meets with many investors and will add “a very active investor relations” department this year. He said PureHealth’s annual financial report will be released 45 days after the IPO, so the prospectus contains “minimum” information about performance.
IHC’s complex valuation has confused analysts and investors. Abu Dhabi has transferred ownership of dozens of private companies to IHC, sometimes through reverse mergers. The group’s cash and cash equivalents rose to $20 billion last year from $80 million in 2018, according to data compiled by Bloomberg. (Financial experts and advisors reviewed the third-party transactions, Schubb said.)
Investors in the UAE must be prepared for unusual market conditions. In February, IHC took an unlikely governance step for a company listed on the New York Stock Exchange. It said a virtual entity with AI capabilities would serve as an “AI observer” to its board of directors. Called Aiden Insight, it will continuously process decades of business data and financial information, according to the company.
Ryan Bohl, senior analyst for the Middle East and North Africa at risk intelligence consultancy Rane Network, said investors in the UAE may face unclear policies.But the fact that so much relies on a member of the royal family provides clarity, he said: “It can be said that the dirham stops at [Sheikh] Thanon. ”
