Abu Dhabi Mega-Lenders May Bring More Pain to 3 Dubai Stocks

(Bloomberg) -- Banks based in Abu Dhabi are expected to put more pressure on stocks that have already taken a beating in neighboring Dubai.

A merger between Abu Dhabi Commercial Bank PJSC and Union National Bank PJSC on May 1 could draw around $193 million from investors who track benchmarks compiled by MSCI Inc. and FTSE Russell, according to Mohamad Al Hajj, an equities strategist at EFG-Hermes Holding.

The combined entity will later acquire a privately-held bank, creating a lender with around $114 billion in assets, and could trigger the ouster of three stocks in Dubai from MSCI’s benchmarks, he wrote in a report.

The three, Emaar Development PJSC, Emaar Malls PJSC and Damac Properties PJSC, have been battered by real estate market worries in Dubai over the past twelve months. Potential investor outflows for these stocks could total $194 million.

Abu Dhabi Mega-Lenders May Bring More Pain to 3 Dubai Stocks

In another scenario, the biggest bank in the United Arab Emirates, First Abu Dhabi Bank PJSC, would increase its foreign ownership limit to 40 percent, from 25 percent. If it does so before mid-April, there is a “very high likelihood” the three stocks could be excluded from MSCI’s indexes as soon as May, Al Hajj estimated. In January, FAB said it planned to raise the cap for foreigners and received shareholders’ approval for the move, but has yet to act.

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