After almost five years without any initial public offerings (IPOs) on either of Dubai’s two equities bourses, 2014 saw a change – first the drought ended, in March, and then activity scaled up with two new stocks added in an eight-day span in September and October. The outlook for offerings is bright, thanks to a combination of the Dubai government’s commitment to developing its equities offerings, a relaxation of listing rules, and the general outlook for markets in the region and the wider economy. Overall prospects for economic growth have pushed prices higher, and with it the valuations for IPOs. Conditions are similar across the region – there were $2.4bn in IPOs in the first half of 2014 in the MENA region – the largest amount in the first six months of any year since the financial crisis in 2008, according to consultancy EY. For 2014 as a whole, Dubai companies rose $3.74bn through share sales, up from $774m in 2013, according to Bloomberg data.
New listings are likely in the short and long term from multiple sources, including the private sector, partial privatisations of government or government-related entities (GRE), and from small and medium-sized enterprises. Investors stand ready and willing to buy, according to an online survey conducted by the Dubai Financial Market (DFM), the larger of the two stock markets in the emirate. The poll, conducted in November 2013, found 76% of surveyed investors were ready to participate in IPOs, expressing particular interest in hotels, tourism and retail businesses. In February, US-based Morgan Stanley predicted multiple IPOs across the region worth more than $1bn, in line with global trends. According to Bloomberg data there were 429 IPOs worldwide in the second quarter of 2014, up from 347 in the same period in 2013.
Emirates Real Estate Investment Trust (REIT) kicked off the 2014 IPO wave with an offer in March on NASDAQ Dubai. There were 3.5 times more orders than could be filled, and that demand lead to a decision to increase the size of the offer from $150m to $175m and from 128.6m shares to 147.9. The offer was priced at $1.36 per share, and provided 46% of the company’s ownership available as free float. The trust is a familiar vehicle on markets, but it is the first of its kind in the Dubai market. It was created in 2010, is sharia-compliant and has acquired a portfolio of 10 properties in Dubai. These assets were worth $333m as of the end of 2013, up from $213m at the close of 2012. The core owners of the REIT are Dubai Islamic Bank and two separate units of Dubai Holding.
The biggest of the new listings in 2014 was that of Emaar Malls Group, a part of the Dubai government’s developer Emaar Properties, on the DFM. The September IPO transferred 15% of the firm’s overall value to new shareholders, raising Dh5.8bn ($1.6bn) in capital – a smaller amount than the published rules. Essa Kazim, the chairman of DFM, in a public statement in October raised the possibility of exemptions from the minimum requirements, in particular for IPOs of strategic value.
It was the largest IPO in the GCC region since 2008. The shares were valued at Dh2.90 ($0.79) each, and the sale implies a market value for Emaar Malls of Dh37.7bn ($10.3bn). A notable development was that 30% of the shares were set aside for retail investors.
The other new listing was that of Marka, which raised Dh275m ($74.9m). The IPO was conducted in April 2014, and the shares’ first day of trading was on September 25. At the time of listing Marka was a new company with no current operations, termed a greenfield IPO. In May, after the shares had been sold but before a listing was established, the Securities and Commodities Authority approved the plan. For Fathi Ben Grira, CEO of MENACORP, an Abu Dhabi investment company, this speaks to the importance of executives in the UAE market. Marka plans to invest in opening retail outlets and restaurants. The IPO accounted for 55% of that money, with the rest coming from 151 founding investors. The offering was 36 times oversubscribed.
Marka’s greenfield IPO has helped pave the way for similar approaches. Amanat, a start-up in health care and education that listed on the DFM, is following the business model, with 37 people signed on as founding investors and contributing a total of Dh1.13bn ($307.5m). One leading name is Faisal bin Juma Belhoul, who has been named chairman of Amanat and has a 1.6% stake. The two biggest founding shareholders are Dubai-based Rimco Investments and Bahrain’s Osool Asset Management Company, with 10% each. Amanat’s IPO aimed to raise an additional Dh1.38bn ($375.64m) and ended up 10 times oversubscribed, with a total of Dh13.6bn ($3.7bn) raised. Health care spending in particular is expected to increase in Dubai, as the emirate is in the midst of implementing a law mandating employers provide health insurance for workers, which is expected to boost spending on health care.
Parks & Resorts
Dubai Parks and Resorts, which is developing a theme park near the Al Maktoum International Airport, came to market in November and December 2014, seeking to raise Dh2.5bn ($680.5m). The IPO included an institutional tranche valued at 60% of the total that was 65 times oversubscribed, the company said. The balance of 40% was sold to retail investors and was 1.63 times oversubscribed, continuing the pattern of outsized demand for new stock in Dubai. This counts as one of the largest-ever IPOs for a theme park, according to market data tracker Dealogic. Dubai Parks and Resorts is a subsidiary of Meraas Holding, a developer owned by Sheikh Mohammed bin Rashid Al Maktoum. Plans at the site include a Legoland, theme parks inspired by Hollywood and Bollywood films, and a Polynesian-style resort. Legoland is expected to open in 2016, according to the park’s website. Greenfield IPOs are allowed according to the UAE’s company law, but the Emirates Securities and Commodities Authority said in December 2014 that greenfield IPOs would be limited to companies of strategic importance and in sectors not yet represented on the UAE’s stock exchanges.
Bulding The Pipeline
Egypt-based Orascom’s 2015 IPO, and a widely speculated Arqaam Capital floatation, is likely to continue the trend, and for the future the private sector looks more prospective than public sector corporations. Emaar Properties is likely to come back to the market again with offerings in more of its divisions. Chairman Mohamed Alabbar said in October 2014 that it may list its hotels unit as well as Egyptian development arm Emaar Misr.
For some GREs, pressure to list may come from the need for capital, in particular in the real estate sector. They are unlikely to be as reliant on bank lending as they have been in the past, thanks to regulations enacted since the financial crisis. Dubai World, one of the largest GREs, is already listed on NASDAQ Dubai, and future IPO candidates include Emirates Airlines, widely considered the most valuable GRE, according to Mohammed Al Shaibani, CEO of Investment Corporation of Dubai, the government’s sovereign wealth fund that owns GREs. In March 2014 Al Shaibani said Dubai Airports, Emirates Aluminium and others could see partial privatisations, with secondary listings possible on the London Stock Exchange. An exception to the trend is Dubai Holding, which has said it is not considering an IPO.
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