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Drake & Scull a Signal for Future IPOs

Drake & Scull shares accounted for 73 per cent of total traded volume at the Dubai Financial Market on Monday with bids totalling more than 593.739 million, and 68 per cent of the market’s value at Dh469.721 million.

There was really nothing surprising about the company’s listing turnout, said Ali Khan, managing director of Arqaam Capital Ltd. “A lot has happened globally from the time the books closed on Drake & Scull.”

Stock markets worldwide, including those in the Gulf Co-operation Council, continue to reel from a freefall as global economic activity is slowing down, with the markets in the region losing an estimated $535 million or about 48 per cent of their value in 2008. The Dubai stock exchange turned out to be the Middle East’s biggest loser in 2008, plummeting 72.4 per cent, while Abu Dhabi Securities Exchange fell 47.5 per cent.

Analysts believed Drake & Scull’s lacklustre debut is a forerunner of the fate of companies mulling initial public offerings this year amid the lack of investor confidence in equities.

“This is just not the opportune time for IPOs when investor sentiment is at its lowest. IPOs generally do well, both in terms of initial response and post-listing performance, only when the secondary market is booming. We are clearly far from it now,” said MR Raghu, senior vice-president for research at Kuwait Financial Centre 
or Markaz.

On Sunday prior to its listing, the company said it has been awarded its largest infrastructure, water and power project to date – a 65-tonne district cooling plant in Durrat, Bahrain, worth Dh596 million.

“We have big plans for the future,” said Drake & Scull’s executive director Tawfiq Soud, adding the company is working on more than 35 projects in Abu Dhabi, Dubai and in the Middle East and North Africa region, valued at more than Dh5 billion.

There may still be room for an upside at Drake & Scull, said Khan of Arqaam Capital. “Drake & Scull is flushed with cash, and management guidance is for at least a 10 per cent net profit growth in 2009 which is a commendable performance for a company in the current environment.”

Drake & Scull chief executive officer Khaldoun Rashid Tabari told Khaleej Times in a recent interview that the company is projecting a 20 to 25 per cent growth in revenue and net profit this year, supported by new projects in the Middle East and North Africa region.

rocel@khaleejtimes.com