Unlocking New Horizons: Why Should Companies Listed in Korea Consider a Secondary Listing on the Stock exchanges in the UAE
Korea Focus
Andrew TarbuckPartner, Head of Capital Markets
Jiwon HaSenior Counsel,Korea Group
Haya Al BarqawiAssociate,Corporate Commercial
In an era of increasing global economic interconnectivity, companies are constantly seeking new ways to expand their reach and access capital. For Korean companies looking to elevate their international profile and tap into new investor pools, one such opportunity that deserves serious consideration is a secondary listing on one of the three exchanges in the UAE; the Dubai Financial Market (DFM), the Abu Dhabi Securities Exchange (ADX), or Nasdaq Dubai (altogether, the UAE Exchanges). This strategic move could open doors to a wealth of benefits, particularly in light of recent developments such as the Comprehensive Economic Partnership Agreement (CEPA) between the United Arab Emirates (UAE) and South Korea. With the boom in the equity capital markets section in the Middle East over the last few years, the exchanges in the UAE have been gaining prominence as a bridge between Eastern and Western markets.
Their unique position offers Far East Asian companies, including those from South Korea, Japan, and China, an unprecedented opportunity to tap into the dynamic Middle Eastern market while enhancing their global profile.
The recent signing of the CEPA between the UAE and South Korea marks a significant milestone in the economic relationship between these two nations. This agreement not only strengthens bilateral ties but also paves the way for increased cross-border investments and collaborations. In this context, a secondary listing on one of the UAE Exchanges becomes an even more attractive proposition for Korean companies and, by extension, for other Far East Asian enterprises looking to capitalise on this growing economic synergy. This article will explore the multifaceted benefits of a secondary listing on the UAE Exchanges, the impact of the UAE-South Korea CEPA, and why Korean companies should seriously consider this strategic move in their global expansion plans.
Access to Middle Eastern Investors: A secondary listing on one of the UAE Exchanges provides a gateway to a diverse and sophisticated investor base in the Middle East. The region is home to numerous high-net-worth individuals, sovereign wealth funds, and institutional investors actively seeking international investment opportunities. By listing on one of the UAE Exchanges, Korean companies can directly access this pool of capital, potentially diversifying their shareholder base and reducing dependence on domestic markets.
Enhanced Global Visibility: A listing on one of the UAE Exchanges can significantly boost a company's international profile. Dubai's status as a global financial hub ensures that listed companies receive attention from investors, analysts, and media worldwide. Furthermore, the recent listings of ADNOC subsidiaries has shone the spotlight on listings on the ADX, drawing companies and investors to the market alike. This increased visibility can lead to greater brand recognition, potentially opening doors to new business opportunities and partnerships beyond the Middle East.
Increased Liquidity: Secondary listings often result in improved liquidity for a company's shares. By being traded on multiple exchanges, the stock becomes accessible to a wider range of investors across different time zones. This can lead to increased trading volumes, potentially reducing price volatility and lowering the cost of capital for the company.
Regulatory Framework and Transparency: Whether subject to the rules of the Securities and Commodities Authority (regulator of the ADX or the DFM) or the Dubai Financial Services Authority regulator of Nasdaq Dubai), the UAE Exchanges operate under a robust regulatory framework that adheres to international standards. This can enhance a company's credibility and attract investors who prioritise transparency and good corporate governance. For Korean companies, complying with listing requirements of such regulators can also serve as a stepping stone towards meeting the standards of other major global exchanges.
Currency Diversification: Listing on Nasdaq Dubai allows companies to have their shares traded in US dollars, while listing on the ADX or the DFM allows companies to have their shares traded in UAE Dirhams (which is pegged to the US dollar), providing a natural hedge against currency fluctuations. This can be particularly beneficial for Korean companies looking to reduce their exposure to local currency risks.
The recent CEPA between the two countries not only marks a pivotal moment in economic relations, but has far-reaching implications for businesses in both countries, including potential benefits for companies considering a secondary listing on the UAE Exchanges.
Overview of Relevant CEPA Provisions: The CEPA is designed to boost bilateral trade and investment between the UAE and South Korea. Key provisions include: (a) Reduction or elimination of tariffs on a wide range of goods, (b) Liberalisation of services trade, (c) Enhanced protection for investments, and (d) Cooperation in areas such as intellectual property, e-commerce, and government procurement. While the agreement does not directly address stock exchange listings, its overall impact on economic relations creates a more favorable environment for cross-border financial activities.
Potential Easing of Cross-Listing Regulations: The CEPA signals a commitment to deeper economic integration between the UAE and South Korea. This could potentially lead to: (a) Streamlined processes for Korean companies seeking to list on UAE Exchanges, (b) Mutual recognition of regulatory standards, reducing compliance burdens, and (c) Enhanced cooperation between financial regulators in both countries, facilitating smoother cross-border transactions. While specific changes to listing regulations have not been announced, the CEPA creates a framework for ongoing dialogue and cooperation that could result in more favourable conditions for cross-listings in the future.
Sector-Specific Opportunities: The CEPA identifies several key sectors for cooperation, including renewable energy, healthcare, and technology. Korean companies in these sectors may find particular advantages on the ADX or the DFM given the trend of listing such companies on these markets in the UAE, as it could facilitate partnerships and capital raising for projects in the UAE and broader Middle East region.
Precedent for Other Far East Asian Countries: While the CEPA is specific to South Korea, it sets a precedent for enhanced economic cooperation between the UAE and Far East Asian countries. This could pave the way for similar agreements with other nations, potentially extending the benefits of easier cross-listings to companies from Japan, China, and other countries in the region. Additionally, the DFM and the ADX have recently signed numerous co-operation agreements and/or have been listed as recognised stock exchanges with the Shanghai Stock Exchange and the Stock Exchange of Hong Kong.
Beyond equity cross-listing, the practice of listing a company’s shares on a different exchange in addition to its primary exchange, the UAE Exchanges also offers opportunities for bond and sukuk (Islamic bond) listings. This is particularly relevant for companies looking to diversity their funding sources and access the growing Islamic finance market. Sukuk are Islamic financial certificates, similar to bonds in Western finance, but structured to comply with Islamic law. They represent undivided ownership in a tangible asset, usufruct, service, project, or investment.
As the global economic landscape continues to evolve, secondary listing can serve as a powerful tool for Korean companies to position themselves at the forefront of this shift. It offers not just a listing, but a gateway to unique and new opportunities to expand their horizons. By tapping into new investor pools, increasing visibility, and potentially boosting valuation, those companies that take the initiative to cross it early may find themselves best positioned to reap the rewards of this exciting new era of economic cooperation and growth.
For further information,please contact Andrew Tarbuck, Jiwon Ha, and Haya Al Barqawi
Published in September 2024
