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| October 20, 2000 | atimes.com | ||
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Special Reports
Abu Dhabi's US$3.3bn desert island dream By Tony Allison In 1992 the rulers in Abu Dhabi, the richest of the seven United Arab Emirates states, conceived the idea of an international stock exchange to begin the process of weening the economy from dependency on oil revenue, but it was not until 1999 that the ambitious project gathered significant momentum. The Abu Dhabi government hired international advisers, public relations experts and financial consultants to lend the project credibility and to convince the international community that it had the ability to complete the development of Saadiyat Market by 2002. When completed it is envisaged that Saadiyat Market, which will comprise an international stock exchange, a futures and options exchange, a commodities exchange and a clearing house, will be strategically located to access an estimated US$1 trillion in regional assets, plus annual commodities trading of about $400 billion. Its sphere of influence will cover the key markets of the Middle East, the Gulf Cooperation Council countries, eastern and southern Africa, India, Pakistan and the countries of the former Soviet Union. The project involves building an entire city for 25,000 people on a 26 square kilometer island off the coast of Abu Dhabi, dedicated solely to the pursuit of business and trade. The Abu Dhabi Free Zone Authority (ADFZA), a specially constituted arm of the Abu Dhabi government, has been created to license participants in the Saadiyat Market and supervise and regulate activities on the island. The authorities plan to attract leading international financial institutions, offering direct stock market participation, mutual funds, insurance products, offshore and local banking and wealth management services, all designed to lure investors into basing their cash management in the new city. It is estimated that Saadiyat will create spin-off benefits to the region's economy in excess of $170 billion in its first 25 years of operation. The bourses will fill a three- to five-hour gap between the Emirates and the nearest major world trade centers - mainly Europe and London to the east and Hong Kong and Singapore to the east - with an active, regulated capital market where currently none exists. It will also fill a void in the international finance trading week as, in accordance with the Islamic weekend, its markets will be open on Saturdays and Sundays. The regulatory framework for the island has already been established and is based on the "best practices" undertaken by existing international centers. The ADFZA has granted the Emirates Global Capital Corporation (EGCC) a 50-year renewable license to build and operate Saadyiat Market. EGCC's chairman, Salah al Shamsi, is on record as saying that the corporation's aim is to "build the next Hong Kong or Singapore". Licenses are already being issued for companies wishing to locate on the island, notably the National Bank of Abu Dhabi, the largest in the Emirates and the 16th largest in the Arab world by assets. It has not, however, been revealed whether any major international players have been attracted by the generous incentives being offered, although the ADFZA reports a "very positive and encouraging" response. Critics of the project, who claim the scheme is far too ambitious, have expressed concern that international companies might be standoffish to offshore or tax-efficient finance markets, and that if they are already listed in London of Hong Kong, for example, they would not be likely to seek a further listing in a new and unproven market. Financing The Abu Dhabi government is nevertheless firmly committed to the project and it is clear it has the economic clout to push it through: It has a sovereign risk rating of A+ and proven oil reserves of 100 billion barrels, which at the current rate of extraction will last for more than 120 years. The EGCC plans to raise $3.3 billion through local and international offerings - funds which will be used to construct and develop Saadiyat. It will also be the first firm to float on the Saadiyat International Stock Exchange (Sise). The most recent reports indicate that it has so far come up with $1.06 billion, although an initial public offering (IPO) has been delayed indefinitely, About $400 million of this was from the government of Abu Dhabi, $165 million from the private investment department of Sheikh Zayed, the president of the UAE and ruler of Abu Dhabi, and $165 million from the International Petroleum Investment Co (Ipic). Two international institutions, which have not been identified, have also committed investments of $165 million each. EGCC officials said Global Depositary Receipts (GDRs) in the company would also be floated, probably either in London or Luxembourg, giving the firm more international clout and credibility. Phase One The first phase of the development project of Saadiyat Island involves the construction of a mini town with offices, residences, leisure and entertainment facilities, and civil works such as roads and bridges. The Saadiyat Market will also include an exhibition center, commercial and residential real estate development, an airport, a seaport, and a social and leisure infrastructure. The island will be connected to Abu Dhabi by a six kilometer bridge. It will have modern storage facilities, including weatherproof silos and warehouses that can accommodate 9.3 million metric tons of commodities, a seaport and an airport to accommodate huge cargo vessels and aircraft, and other amenities, including a commercial marina, a five-star hotel, a golf course, a car racing track, and an equestrian club. Besides becoming a regional financial center, Saadiyat Market aims to become a digital city, and cyber laws are being formulated in cooperation with international legal consultants. Four exchanges The four exchanges will form the base of Saadiyat Market's financial service activities for investors. The most important will be the Sise, which will be a self-regulated member-owned body responsible for running an equitable securities trading operation. It will be responsible for monitoring all member firms' and listed companies' trading. Initially it will be an electronic, order driven market, but it is expected to become scriptless, with straight-through processing. The Saadiyat Futures and Options Exchange (SFOE) will provide investors and companies with the ability to trade in financial and commodities derivatives - like futures and options - particularly those connected to the region's natural resources, such as oil and gas. The market will also provide opportunities for risk management among small businesses and other market users, via hedging. The Saadiyat Commodities Exchange (SCE) will facilitate the trade of physical commodities from the market's hinterland, where there is an estimated annual commodity flow of $400 billion. The SCE will be able to trade in all 67 commodities listed by the United Nations Committee for Trade and Development. The Saadiyat Clearing House (SCH) will be responsible for clearing and settlement services to the Sise, SFOE, the SCE and other exchanges in the Middle East. The clearing house will be the only one of its kind in the world to settle transactions over the traditional Western weekend. Banking A key area in the development of Saadiyat will be international banking. The EGCC's plan is to offer incentives which will make the island the global headquarters of the international banking industry. The UAE's banks alone are currently believed to have over $60 billion of excess liquidity, and much of this will be targeted for use and growth in Saadiyat. The island will provide participating banks with the opportunity to establish full banking branches with no minimum capital requirements, and to accept retail and wholesale deposits from local and international residents and residents of other states. For investment purposes, the market's expected participants are broadly categorized as investment and financing companies - including commercial and investment banks, leasing and investment companies, asset management firms, securities firms and companies specializing in tax-haven investment products, such as mutual fund providers, insurance companies and brokers. Incentives In the hope of winning over international investors a number of incentives are being offered:
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