DIFX TO BECOME NASDAQ DUBAI

C O N F I D E N T I A L DUBAI 000416 DEPARTMENT FOR NEA/FO, NEA/ARP (BMASILKO) AND EEB; SIPDIS E.O. 12958: DECL: 11/10/2018 TAGS: ECON EFIN EINV AE SUBJECT: DIFX TO BECOME NASDAQ DUBAI REF: (A) 07Dubai 540 (B) Dubai 358 CLASSIFIED BY: Paul Sutphin, Consul General, Consulate General Dubai, UAE. REASON: 1.4 (b),(d) Classified by Consul General Paul Sutphin, reasons 1.4 (b) and (d). ¶1. (C) Summary: Building on last year's deal with NASDAQ (ref a),the Dubai International Financial Market plans to announce its re-branding as "NASDAQ Dubai" in late November. As a continuation of industry trends in exchange management, Borse Dubai CEO Essa Kazim is considering potential NASDAQ/Borse Dubai expansion plans into Europe (including the LONDON Stock Exchange) and China. Reflecting on the 50 percent decline in the UAE stock markets this year, Kazim stressed investor panic rather than market fundamentals are largely to blame. End Summary. -------------- Big Plans for new "NASDAQ Dubai" -------------- ¶2. (C) During a November 5th meeting with DPO and Pol/econoff, Essa Kazim, Chairman and CEO of the year old Borse Dubai (the Dubai government majority-owned holding company for the Dubai Financial Market (domestic stocks) and Dubai International Financial Exchange (internationally-traded stocks)) revealed that on November 20 the Dubai International Financial Exchange (DIFX) will announce its re-branding as NASDAQ Dubai. As part of a complicated deal last year between Borse Dubai, NASDAQ, and OMX (the Scandinavian exchange holding company),NASDAQ acquired a 33 percent stake in DIFX, while Borse Dubai (BD) received a 19.9 percent share of NASDAQ and an agreement allowing its DIFX subsidiary to use the NASDAQ brand name. ¶3. (C) Kazim commented that the NASDAQ/BD partnership is looking to strengthen its position in both Europe and China (although he noted China is a longer term project given existing and onerous regulatory restrictions). BD currently has a 22 percent stake in the LONDON Stock Exchange (LSE),most of which was acquired in a separate deal with NASDAQ after the U.S. exchange failed in its 2007 LSE takeover bid. Kazim suggested a renewed joint NASDAQ/BD attempt at acquisition of the LSE might be in the offing. BD also maintains a 22 percent share in the Borsa Italiana. Consolidation of exchanges generates operational efficiencies, key to overall profitability. -------------- Dubai Stocks Already Bottomed Out? -------------- ¶4. (C) Reflecting on the more than 50 percent year to date decline in the Dubai stock market, Kazim opined that the fall has been primarily driven by global economic fear, not market fundamentals. He cited as an example Tamweel, a majority Dubai government-owned local mortgage company rumored to be facing problems as a result of speculative lending. Kazim downplayed Tamweel's troubles, however, noting that its capital assets far exceed its current market valuation. Kazim predicted better times ahead and argued that UAE stock prices, especially in the financial and real estate sector, are already reflecting worst-case scenarios and are unlikely to drop further in the coming year. ¶5. (C) Comment: Kazim's optimism about Tamweel is definitely not shared by others in the mortgage industry here; Tamweel -- linked to a series of local financial scandals (ref B) -- and the other major local mortgage lender, the EMAAR-linked AMLAK, are being forced to merge in a shotgun wedding allegedly ordered by Dubai Ruler Mohammed bin Rashid al Maktoum. Together, the two companies have approximately UAED 17b in outstanding loans, which one very knowledgeable Western banker called "very, very speculative-if you could stand up and breath, you got a mortgage." SUTPHIN