Firms choose Dubai flotation

(CNN) -- Last Sunday, DP World, one of the world's largest port operators, announced it was going public. But shares will not be listed on the well-established exchanges in London, New York or Hong Kong but on the two-year old Dubai International Financial Exchange (DIFX).

This wasn't the only good news for the DIFX this week. Abraaj Capital, a leading investment firm in the region, is also planning a $1 billion initial public offering (IPO) and Canadian gold miner, Unigold became the first North American company to list shares in Dubai.

Could these announcements signal a change in fortune for DIFX that has so far struggled to secure its desired position as the leading stock exchange between London and Hong Kong?

DP World, that bought P&O for $6.8 billion last year and part of the U.S. security debate, announced it will list 20 percent of its shares on the DIFX in what will be the Middle East's largest IPO.

Shares will be available from November to international investors, and it is expected the government-controlled firm will raise in the region of $4 billion. Currently DP World is thought to be worth around $20 billion.

It was originally expected that the port operator would also list on the London Stock Exchange, but its decision to go for a straight DIFX listing will be a boon for Dubai that is keen to develop its standing as a financial center.

As a government-controlled firm, DP World of course has a vested interest in Dubai's financial success. And if it's successful in its flotation, the exchange is likely to attract other government firms keen to raise funds through IPOs.

Last week, Abraaj Capital, the Dubai-based private equity firm, announced it would open its portfolio of Middle East investments to international investors in an IPO worth $1 billion.

The developer of the world's biggest man-made islands, Nakheel, also recently told Bloomberg that it may sell shares before 2009 to finance projects.

And Canadian gold miner, Unigold became the first North American company this week to list on the DIFX.

According to Ernst & Young, 20 Middle Eastern companies have raised a total of $3.9 billion in IPOs in the second quarter of 2007. Saudi Arabia came top in the region in terms of funds raised, followed by the UAE and Qatar

The largest offerings have been Saudi Kyan Petrochemical Company's of $1.8 billion, followed by Deyar Development Company's offering in UAE of $883 million, and Saudi Arabia's Jabal Omar Development Company offer of $537 million.

"The Middle East is expected to continue to grow in the next few years with many IPOs waiting in the pipelines," said Omar Bitar, Ernst & Young's managing partner of business advisory solutions in the Middle East. "There is great potential for the region to increase the level of funds raised, especially as it continues to successfully experiment with allowing multiple IPOs to hit the market simultaneously."

John Defterios, in this week's blog, asks why Mideast firms are rushing to go pubic in Dubai: to tap into the cash and confidence of local investors or to secure IPO funding before the good times in the region end?

As far as Anais Faraj, executive director at investment bank, Nomura Middle East is concerned, the region is "trying to create popular capitalism and bring in international capital into local markets." And this, he told CNN, "is a very prudent long-term strategy."

But the region shouldn't expect growth as quickly as in other sectors. As Faraj says, building an exchange to rival the credibility of those in New York and London will require improvements in business practices and, above all, patience. E-mail to a friend