Abu Dhabi plays a leading role in regional capital markets development, both as a driving force for the development of sustainable and virtual asset regulatory frameworks, and as a centre of equity listings and merger and acquisition (M&A) activity. The Abu Dhabi Economic Vision 2030 seeks to diversify the economy away from fossil fuels, ensuring a plentiful supply of formerly government-owned companies seeking to debut on public markets. Moreover, as economic growth continues to expand after the Covid-19 pandemic, there is no shortage of local firms in which Abu Dhabi’s sovereign wealth funds might seek to invest.
Oversight
The overarching federal institutions regulating capital markets in the UAE are the Securities and Commodities Authority (SCA) and the Central Bank of the UAE (CBUAE). The SCA licenses emirate-level regulators and ensures that markets across the country are interconnected, while the CBUAE is in charge of federal monetary policy and financial regulation.
At the emirate level, the Abu Dhabi Securities Exchange (ADX) is the primary bourse, hosting a main board, growth market and derivative market, as well as debt instrument and funds trading including exchangetraded funds (ETFs). In March 2022 the ADX partnered with global benchmark provider FTSE Russell to adopt its Industry Classification Benchmark for all listed equities, together with those on the FTSE ADX General Index (ADXGI). This index, launched in January 2022, includes the FTSE ADX 15 (FADX 15) index, which tracks the top-15 companies on the emirate’s exchange. Later in 2022 the ADX co-developed the FTSE ADX Growth Market Index to track the performance of the growth market segment using a combination of free-float adjusted market capitalisation and median daily trading value.
The ADX’s Sahmi digital platform, which was launched in 2018, offers services such as the issuance of investor numbers and investor reports, the updating of current investor details and requests for the transfer of shares. In July 2022 the ADX and Bahrain Bourse launched the region’s first digital exchange, Tabadul. The platform is based on a mutual market access model and enables cross-border investment between the two exchanges.
Another important player in the emirate’s capital markets is Abu Dhabi Global Market (ADGM), an international financial centre and free zone on Al Maryah Island. Within ADGM, the Financial Services Regulatory Authority (FSRA) issues rules for market participants, and supervises new applications and trading.
The authority also ensures financial crime reporting compliance, handles complaints and issues frameworks to guide the development of financial technology (fintech) services via its ADGM Digital Lab. The lab is essentially a sandbox in which fintechs, financial institutions and regulators can experiment, develop and test innovative solutions and prototypes.
The ADGM court system enforces judgments, applying English common law via a fully integrated electronic system that enables all parties to conduct business remotely. The ADGM Authority, meanwhile, was created in 2021 to guide Abu Dhabi’s bid to become a leading international financial centre. It does so by monitoring global innovations in the space and providing ADGM with tech infrastructure, and business development and human resources assistance, while also managing its finance, marketing and procurement functions.
ADGM maintains market infrastructure comprising primary and secondary markets, ranging from the offering and listing of securities – including digital securities – to bespoke commodity derivatives and virtual asset trading venues. Key players are recognised investment exchanges and clearing houses, multilateral trading facilities and organised trading facilities. Remote entities such as brokerages can connect with ADGM-based brokers, exchanges and clearing houses, though authorisation may be required.
Performance
In keeping with Abu Dhabi’s ranking as the fastest-growing economy in the MENA region in 2022 – with the emirate’s GDP expanding by 9.3% – the ADXGI gained more than 20% in value over the course of the year. The ADX’s market capitalisation increased by 61.4% in 2022 to Dh2.62trn ($713bn), according to CBUAE’s “Financial Stability Report” for 2022. That same year, higher levels of both domestic and foreign investment pushed the ADX’s trading value up 21.9% to Dh451bn ($122.8bn), while total net foreign investment rose to Dh24bn ($6.5bn) and net institutional investment reached Dh8bn ($2.2bn).
In March 2023 the SCA joined the Abu Dhabi IPO Fund, which launched in October 2023, a Dh5bn ($1.4bn) government-led vehicle that stimulates private investment in local listings by taking on small and medium-sized enterprises’ IPO costs. The SCA agreed to cooperate on developing a general IPO framework in order to help deepen domestic capital markets. The fund is expected to invest in between five and 10 private organisations every year, with a target ticket size of between 10% and 40% of the float.
In 2022 the ADX listed 18 securities, including shares, bonds, warrants and investment funds. Five of these were new stock listings, raising a total of $5.4bn. Abu Dhabi Ports raised $1.1bn, while private health care group Burjeel Holdings secured $300m. The growth board also experienced activity in the first half of 2023 via the listings of digital payments firm MBME Pay and Ethmar International Holdings, a local investment firm.
In the third quarter of 2022 the ADX launched an ETF that tracks the performance of sharia-compliant stocks listed on Borsa Istanbul. In August of that year 10 ETFs were listed on the exchange, including the FADX 15, which was launched in March 2022 to track the ADX’s benchmark index.
International Holding Company, a locally based international investment group, is the ADXGI’s major stock, commanding 41.7% of the index’s portfolio by net market capitalisation as of mid-2023. Financial firms dominate the index’s 68-company volume with 27 listed companies, followed by industrial companies, with 15.
In November 2022 Mohamed Ali Al Shorafa, then chairman of the Abu Dhabi Department of Economic Development, told Bloomberg that he expected 11 listings to take place in 2023, with four eventually taking place in the first half of that year. In those six months the ADX’s market value rose to Dh2.77trn ($754bn), supported by the $2.5bn public debut in March of ADNOC Gas, an integrated gas company operating an asset base that supplies around 60% of the UAE’s natural gas. Presight AI, an artificial intelligence (AI)-powered big data analytics company underpinned by G42, Abu Dhabi’s AI technology giant, brought in nearly $500m from its debut in March 2023. Bloomberg reported in March 2023 that G42 is considering spinning off its health care and energy units. Other IPO candidates include those operating in the technology, media, asset management and regenerative medicine spaces.
Marketing
In May 2023 the ADX hosted a successful roadshow in New York City, attracting US institutional investors that represented more than $5trn in assets under management. Moreover, in June 2023 the ADX signed a memorandum of understanding (MoU) with Luxembourg Stock Exchange to create a framework for dual listings, as well as enhance issuer and investor engagement both in the Middle East and Europe. This agreement built on a similar MoU signed with Oman’s Muscat Securities Market the previous September, which is in line with Tabadul’s goal of promoting greater financial flows between the GCC’s exchanges.
Between November 2021 and November 2022 the ADX Derivatives Market, which allows investors to hedge and leverage securities, achieved Dh1bn ($272.2m) in traded value, with more than 1m contracts traded. This made the ADX the most liquid derivatives market in the region, while also being the youngest. As of October 2022 the derivatives market consisted of 10 single-stock futures, including the initial e& (formerly Etisalat), First Abu Dhabi Bank, International Holding Company, ADNOC Distribution and Aldar Properties contracts, as well as a FADX 15 Futures contract.
Consolidation
In 2022 the UAE topped the MENA region’s list of M&A target countries, as well as bidder countries by value, according to the EY “MENA M&A Insights 2022” report. Abu Dhabi-headquartered firms were involved in two of that year’s top-three deals: e& and its subsidiary Atlas 2022 Holdings acquired a 9.8% stake in Vodafone Group for $4.4bn in May, and in December ADNOC announced that it would purchase a 24.9% stake in Austrian oil and gas firm OMV Group for $4.1bn from Abu Dhabi’s private investment vehicle, Mubadala Investment Company.
Mubadala stepped up international acquisition activity in 2023, announcing a $500m investment in US-based internet service provider Brightspeed in May, and in April a joint $315m investment in Chinese pharmaceutical firm Hasten Biopharmaceutical Company with Asia’s largest health care investment company CBC Group. Meanwhile M42, a health care joint venture between Mubadala and G42 in April 2023, bought Sweden-based Bridgepoint Group’s European dialysis clinic chain Diaverum for an estimated $2bn-2.5bn.
The Abu Dhabi Investment Authority (ADIA), the emirate’s original sovereign wealth fund tasked with investing oil wealth, is active in equity investment, having committed significant capital to the space in 2021. ADIA’s private equity unit completed 40 direct investments that year, up from 25 in 2020, including 12 co-investments in early-stage companies focusing on biotech. In July 2023 the authority was reported to be in talks with US private equity group KKR on a €23bn bid for Italian ICT firm TIM Group’s landline business.
Debt Markets
As of mid-2023 Abu Dhabi had yet to go to global debt markets as a sovereign entity that year. The emirate’s most recent bond sale occurred in May 2021, when it sold a combined $5bn in seven- and 10-year bonds, issued in two separate tranches. Both were oversubscribed, showing widespread interest.
That being said, in May 2023 Mubadala raised $1.5bn from a dual-tranche bond sale that drew more than $18bn in demand, having expanded its balance sheet by about $4.5bn in 2022. Mubadala has $1.8bn in debt maturing in 2023, including $1.4bn in bonds. Another $3bn in debt, including $1.8bn in bonds, is due in 2024.
In terms of corporate debt, Abu Dhabi National Energy Company, known as TAQA, issued $1.5bn in dual-tranche five-year bonds in April 2023, with the transaction nearly 10 times oversubscribed. This was the utility’s first green bond following the launch of a green financing framework earlier the same month.
In August 2023 Abu Dhabi clean energy company Masdar listed its debut $750m 10-year green bond on the London Stock Exchange, with the offering nearly six-times oversubscribed. “The demand for green bonds is high and will enable investment in renewable energy projects, many of which will be in developing economies and climate-vulnerable countries,” Sultan Al Jaber, UAE minister of industry and advanced technology, group managing director and CEO of ADNOC, and Masdar chairman, said at the bond’s debut.
Sustainable Agenda
ADGM is pursuing a sustainable finance agenda to become a leader in green capital investment. In 2019, as part of the Sustainable Finance Agenda’s “collaboration” pillar, ADGM launched a voluntary, membership-based sustainable finance initiative with the CBUAE and the SCA. As of January 2022 there were 59 public and private signatories looking to create a thriving sustainable finance environment ahead of the COP28 UN Conference on Climate Change in November 2023. In preparation for the conference, in October 2022 ADGM sponsored the 10th “Global Green Finance Index”, which rates the green finance performance of international financial centres. ADGM was second in the region and 33rd of 84 countries overall.
In January 2023 ADGM hosted the fifth Abu Dhabi Sustainable Finance Forum (ADSFF), a carbon-neutral event that convened major industry figures and regulators to discuss sustainable financing and investment. The ADGM Sustainable Finance Platform, launched at the 2022 ADSFF, aims to supply information on responsible banking; investment; sustainable products; environmental, social and governance (ESG) disclosures; and sustainable capital markets. In addition, ADGM is the chair of the Sustainable Finance Working Group, which is composed of UAE financial regulators, federal ministries and UAE exchanges.
Virtual Assets
The Abu Dhabi Blockchain and Virtual Assets Committee held its first meeting in August 2022 as part of efforts to boost the emirate’s blockchain and virtual asset competitiveness, and uphold sector-wide regulatory requirements and best practices. Abu Dhabi continued to build upon its early leadership position in the virtual assets space by expanding rules regarding creating and managing public keys in September 2022, and obligating firms conducting virtual asset transactions to conduct risk analysis for clients who wish to be involved. New guidelines covering non-fungible tokens (NFTs) were also introduced in March 2022, allowing regulated multilateral trading facilities to provide NFT custody services.
Framework Changes
In November 2022 ADGM’s FSRA published revised capital markets guidance that focused on environmental instruments and commodities, as well as a regulatory framework for green investment funds and a framework for climate transition investment funds. The framework aims to create the region’s most comprehensive guidance on ESG disclosures covering listed companies, regulated financial services firms and large private commercial entities. The FSRA has also strengthened its requirements in line with the International Organisation of Securities Commissions in terms of capital-raising requirements, continuous disclosure obligations, preference securities and weighted voting rights.
The changes incorporate voluntary carbon credits into the FSRA’s regulatory scope, making them tradeable as spot commodities inside ADGM – a first for an international financial centre in the MENA region. As more companies seek to meet net-zero carbon emissions targets, carbon credit and related sustainability trade is expected to expand. Meanwhile, the regulator has created a new form of sustainable investment vehicle: climate transition funds, which direct capital to so-called brown projects to become carbon neutral.
The new guidance also introduced a wider framework for the trading of spot commodities, defined as any physical or energy good of a fungible nature that is or can be traded on a secondary market. The FSRA will maintain jurisdiction over what is accepted as a spot commodity, accounting for market practice, the number of market participants and liquidity. Moreover, the authority requires that spot commodity storage arrangements to be aligned with the OECD’s Due Diligence Guidelines for Responsible Mineral Supply Chains from Conflict-Affected and High-Risk Areas. The requirements are set to expand Abu Dhabi’s leading role as a marketplace for the trade of its Murban crude oil futures, particularly as refiners continue to seek alternatives to Russian oil.
While ADGM has established energy derivatives trading, it has yet to do so as a medium for energy firms to list securities. As such, mining and petroleum firms are being encouraged to list in the zone under a softer disclosure regime in which they forego a requirement to list audited accounts covering three years.
The framework has already spurred activity, with Mubadala acquiring a 20% stake in Singapore’s AirCarbon Exchange (ACX) in November 2022 in a deal that will see the latter establish a carbon credits trading exchange and trading house in ADGM. ACX uses blockchain technology to securitise carbon credits and plans to make use of its distributed ledger technology to produce digital tokens for carbon credits that will be used for spot trading. More recently, in July 2023 Offset8 Capital, a local asset management company, announced plans to raise $250m for a carbon investment fund. Once closed, the fund will be the first of its kind in the Middle East, and will target projects and companies engaged in reducing carbon emissions.
The FSRA’s enhanced guidance widens participation within primary and secondary markets for outside investors by removing a mandate for ADGM entities to have approved prospectuses in order to offer securities in other jurisdictions. The change effectively allows entities to establish holding companies and special-purpose vehicles within ADGM for the purpose of raising capital outside its borders.
Meanwhile, in September 2022 Abu Dhabi-based firm International Securities launched a complementary effort to broaden the ADX’s accessibility to global investors, providing them the option to generate national investor numbers, and open a digital account with the brokerage firm to trade securities on the ADX and Dubai Financial Market from anywhere in the world. Investors in other UAE markets have been able to trade with each other via national investor numbers since May 2022.
Challenges
One potential barrier ahead is the impact of a 9% federal UAE corporate tax on businesses’ net profit that came into force for some companies on July 1, 2023, and will affect others at the start of 2024, depending on how their financial reporting is structured. It is unclear how the fiscal adjustments, which also include changes to the value-added tax system, may impact the UAE’s wider efforts to diversify and sustainably grow its economy.
Outlook
As global expansion continues to face headwinds in the forms of fluctuating inflation and slowed productivity growth in developed markets, Abu Dhabi stands out as an attractive investment opportunity. Robust demand for its debt speaks to confidence in its future economic trajectory and its IPO pipeline appears strong. In July 2023 ratings agency Fitch affirmed Abu Dhabi’s long-term foreign-currency issuer default rating at “AA” with a stable outlook. The agency expects the emirate to run fiscal surpluses of 7.8% of GDP in 2023 and 6.6% in 2024, down from 14.7% in 2022, showcasing that the emirate does not have the same fiscal balance constraints felt by some of its GCC peers. Moreover, Abu Dhabi has demonstrated regulatory foresight on key issues that will shape the future of capital markets, and its efforts to create a space for better regulated carbon credit trading could ultimately earn praise.
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