Etisalat inclusion in MSCI index possible this year after opening up to foreign ownership

Etisalat could be included in the influential MSCI Emerging Markets Index as early as August after the UAE’s biggest listed company was opened up to foreign investment.

The federal government’s decision to allow foreign investors to own its shares sent the stock soaring 15 per cent yesterday – the maximum allowed in a single trading session and the biggest one-day gain for the telecoms company in a decade.

Etisalat said on Monday that the federal government would allow non-Emirati shareholders to own up to 20 per cent of its share capital.

The announcement came just over a week after Saudi Arabia allowed qualified foreign investors to directly trade in Saudi equities for the first time.

Etisalat’s inclusion in the MSCI Emerging Markets Index would result in the company representing 0.14 per cent of the index, boosting the UAE’s overall weighting in the index to about 0.87 per cent from its current level of 0.73 per cent, according to a strategy note from EFG-Hermes yesterday.

The lifting of Etisalat’s restriction on foreign ownership, should it occur before the end of July, makes it a candidate for inclusion in the MSCI Emerging Markets Index from as early as this August, leading to passive inflows of about $360 million, EFG-Hermes said.

MSCI was not immediately available for comment.

“At current levels, Etisalat should be of great interest to [emerging market] and regional institutions,” the bank said.

“The stock will offer previously unavailable exposure to the UAE telecoms sector, which is supported by strong population growth driven by the UAE’s growing role as a regional hub.”

The company said yesterday that the lifting of the restrictions on the shares was subject to “legal and legislative procedures” that had yet to be finalised, with no time frame given.

The long-awaited move had an immediate impact on Etisalat’s shares, traded on the Abu Dhabi Securities Exchange, which rose by the maximum limit of 15 per cent yesterday, closing at a seven-year high of Dh13.80.

Etisalat, the heaviest weighted stock on the ADX General Index, spurred the capital’s headline index to a 2.92 per cent gain to close at 4,755.60, its highest close of the year thus far.

“Etisalat is a high-quality company that will attract interest from international investors,” said Tibor Bokor, head of TMT research at Arqaam Capital.

Arqaam ranks Etisalat as among its top six core buys among 29 telecom stocks in the Middle East and Africa said Mr Bokor, noting that it generates a 10 per cent free cash flow compared with a regional average of 6 per cent.

The lifting of foreign ownership restrictions at Etisalat raises questions about the possibility of a similar move at its local competitor du, said Sebastien Henin, head of asset management at The National Investor in Abu Dhabi.

Du’s publicly listed shares can be owned by both individuals who are UAE and non-UAE nationals, and by companies that are majority-owned by a UAE entity.

Emirates Investment Authority, a UAE government investment vehicle, is the largest shareholder in both Etisalat and du.

Shares in the Dubai-based operator also advanced yesterday, ending the day up 4.58 per cent at Dh5.25, their highest level for three months.

The Dubai Financial Market General Index rose by 0.23 per cent to 4,144.81.

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