Although there was a visible increase in the number of investors crowding the floor of the Doha Securities Market (DSM) on April 3, the first day of partially liberalised trading did not go with the bang that some Qataris had expected. Trading volumes were described as moderate and the benchmark DSM index rose 1.36% on the day, but that was hardly the rush of foreign interest hoped for by local investors, who had pushed the index up more than 70% since the beginning of the year after 65% gains in 2004.
Delivering on a February 6 amendment to Law 13/2000 governing foreign investment, the government opened all listed stocks (bar those of Ahli Bank) to foreign investors on April 3 – the idea being to spur inward investment.
Collectively, non-Qataris may now purchase up to 25% of the issued equity of listed companies either through licensed brokerages or after applying to the DSM for trading floor registration. Previously, foreign investors and fund managers were only allowed to trade the shares of Qatar Telecom (Q-Tel) and Salam International Investments (The Banker, April 2005, p128).
Lukewarm response
Local bankers believe that there are several reasons for investors’ lukewarm response, and the underlying Qatari economy is not one of them. Official figures released by minister of economy HE Sheikh Mohammed bin Ahmad Al Thani put Qatar’s 2004 gross domestic product at $28.5bn, up 20.5% on 2003. Some believe that assessment to be excessively conservative, suggesting that 35% growth could be the real figure. Either way, the growth fundamentals look strong and net profits for the 30 listed companies grew by 58.03% in 2004.
One cause for caution is the high price/earnings ratios at which Qatari stocks have been trading in recent months. At the end of 2004, the average price was at 38 times earnings and in some sectors, such as financial services, ratios have risen to as high as 70. Most analysts and bankers are therefore not surprised that foreigners have failed to rush into Qatari stocks. “The fundamentals of Qatari companies are strong but shares do look overpriced,” says
R. Seetharaman, Doha Bank’s acting general manager. “I don’t expect a crash but I do expect a correction in the next few months.”
IPO delay
To avoid excess pressure on the DSM, the government also decided in March to delay the eagerly awaited initial public offering (IPO) of the Qatar Gas Transport Company (Nakilat), which had been scheduled for April 3. Earlier in the year, applications for the 280m-share IPO were opened to Qatari citizens and empirical evidence indicates that almost every citizen applied for QR10 ($2.7) face value shares offered at QR5.
If the headcount at the DSM was slightly up on April 3 for liberalisation, it was significantly up on April 7 for the delayed Nakilat launch. Blessed with an average allocation of 1233 shares each, scores of Qataris gathered at the DSM building on Grand Hamad Avenue to see the stock open trading at QR60 and close the day at QR71. Trading volumes were moderate, just five million shares traded, but that was good news for the government because it wants to see Qataris become long-term investors rather than short-term profit takers. Instead of doling out state money in the form of windfall hand-outs, as the Kuwaiti government did recently, Qatar prefers to share public wealth through attractively priced IPOs, to which only Qataris can subscribe but which foreigners can subsequently buy into on the secondary market.
Nakilat’s share price therefore ended the landmark trading week up but was one of the few stocks to do so as the DSM index ended a bull run to close 12.5% down.
Super-broker in pipeline
Of fairly immediate concern to banks with DSM brokerage licences – namely Qatar National Bank, Commercial Bank of Qatar, Doha Bank and Ahli Bank – is news that the government plans to launch a single super-broker that will merge their operations together. Initial reports suggest that the entity, to be called Al Dilalah, will be a public shareholding company capitalised at QR200m with seed capital coming from the Qatar Foundation, Amwal (formerly the Qatar Ladies Investment Company) and the state Retirement and Pension Fund. HE Abdullah bin Hamad Al Attiyah, minister of industry and energy, moved quickly to state that the government has “yet to finalise the details”, following speculation that Al Dilalah and a new aluminium company will be listed on the DSM in June.
If Al Dilalah is launched as proposed, the four commercial banks will be obliged to close their brokerage operations, an understandably unappealing prospect. When the team from Bahrain’s Ahli United Bank arrived to take over the management of Al Ahli Bank of Qatar (now renamed Ahli Bank) last September, they found the bank’s domestic equity broking business to be one of the best legacy assets.
