• Home
• /
• Business

UAE firms to raise $3b in 2005 IPOs

ABU DHABI — Companies in the United Arab Emirates are set to raise about 5.5 billion dirhams ($3 billion) through initial public offerings between now and the end of 2005, a senior banker said yesterday.

Karim El Solh, CEO of Abu Dhabi-based investment firm The National Investor, said it would lead manage “about half” of the IPOs in the pipeline for this year, beginning with the 1.4 billion dirham IPO of Sorouh Real Estate, which opens on Sunday.

“It is a great time to go public,” El Solh told Reuters in an interview. The booming UAE stock market is currently trading at a price/earnings ratio of about 27, similar to valuations seen in mature markets, he said.

This makes bourses in Abu Dhabi and Dubai relatively cheap places to raise capital, either to finance investment, or for founding shareholders looking for an exit strategy.

“Right now, if a company wants expansion capital, the cheapest way to raise that is through equity, not debt,” he said.

The Abu Dhabi bourse and its sister bourse in Dubai have each risen by over 80 per cent this year, fuelled by high oil prices and a booming domestic economy. The National Investor was lead manager on the recent 495 million dirham IPO of Aabar Petroleum Investments Co. which was 808 times oversubscribed on the back of strong investor demand.

The firm was also lead manager in late 2004 on the IPO of Aldar Real Estate, which was 448 times oversubscribed.

Aldar shares closed at 10.30 dirhams on the Abu Dhabi bourse yesterday, up from an issue price of 1 dirham at IPO.

El Solh said the massive subscriptions were partly fuelled by strong liquidity and UAE laws stating that the Ministry of Economy and Planning must approve valuations of companies listing in the UAE, normally at prices below market value.

At the same time, UAE rules dictate that companies must offer a minimum of 55 per cent of shares to the public in an IPO.

Both these rulings are unpopular with many companies and bankers. While some UAE firms have pressed ahead with IPOs, banking sources say many others have held back.

Competition from DIFX

“Capital markets will have to evolve and adopt new laws and new systems to stay on track with the times, otherwise companies will migrate to other exchanges. There is competition, and the market with the most accommodating laws will attract companies,” said El Solh.

Existing bourses in Dubai and Abu Dhabi risk losing out to the new Dubai International Financial Exchange (DIFX), due to open on September 26, he said. Companies will be able to list as little as 25 per cent of their shares and at market valuations free from government interference.

“We are speaking to several Arab companies from across the Gulf,” about a possible primary listing on DIFX, said El Solh.

“They are still deciding whether to be a trailblazer and have the prestige of being one of the first to list, or waiting a while to see what happens,” he added.

He declined to name them, but said they were “mainly from outside the UAE”. For smaller UAE companies, though, the existing bourses would probably remain an attractive listing option.

El Solh said The National Investor had no plans to go public itself. The company recently raised its capital to 500 million dirhams through a private placement from its existing shareholders, which include members of the Abu Dhabi ruling family and prominent UAE business figures.

The extra capital will allow The National Investor to underwrite IPOs, which forms part of its regional expansion plans. Lead managers are not required to underwrite IPOs on existing UAE bourses, but they are in Saudi Arabia and on DIFX.

The company said net profit for the nine months to December 2004 was 41 million dirhams, up 394 per cent from 2003, driven by higher investment banking fees and the strong performance of its investment portfolios, which include UAE equities. El Solh said UAE stocks are “fairly valued” at present, pointing to the strong prospects for future earnings growth of UAE listed companies. But he added: “I’m not going to say they are a bargain,” saying that UAE P/E ratios are now similar to those in the US and Europe.