"To private equity investors this increases exit mechanisms and opportunities," Nasser Saidi from the Dubai International Financial Centre said yesterday.
An alternative or second-tier market allows smaller and mostly higher risk companies to float their shares by lowering the regulatory threshold in comparison to a main market. Private equity activity in the region sharply declined in 2009, even though an uptick in fund-raising in the first quarter of 2010 could signal a turnaround, a report shows.
One of the reasons behind the slowdown is that the market for initial public offerings (IPOs) has come to a near standstill since the global downturn, giving private equity firms far less options to make money on their investments. Typically, they invest in a firm and then sell with a profit through an IPO on a stock market.
"Current volatility is likely to keep entities away from the markets, which is why we are predicting end of year and into 2011 for a return," said PricewaterhouseCoopers Capital Markets head Steve Drake.
Saidi said it was too early to say where the market would be established, under which regulation it would operate and whether it would span different countries in the Gulf. "We are talking to several parties, gauging interest from companies," Saidi said, declining to give a time-frame for the initiative.
"I think we are still far away but it would certainly be useful," said Ernst & Young Middle East and North Africa transaction advisory services head Phil Gandier.
