Busy summer for team working on Emaar Properties IPO

Emaar plans to sell 25 per cent of the malls unit for Dh9 billion, implying a value for the full unit of Dh36bn, or more than a tenth of the value of all the companies currently traded on the Dubai Financial Market.

There is one group of people who will not be getting much of a summer this year: the small army of advisers, consultants and valuers who are working on the much-publicised initial public offering of Emaar’s malls business.

It will have to be laptops by the pool in Umbria and spreadsheets over the dining table in Provence for some of the financial professionals involved in the IPO, intended to raise up to Dh9 billion in new money destined for shareholders.

When the Emaar chairman Mohamed Alabbar announced the plan back in March, he said he hoped to get the IPO away before Ramadan. With the holy month just weeks ago, that timetable seems impossible now; one insider talked recently of a fourth quarter debut for the listing.

Hence the summer distractions for the financial classes, but they will probably be glad of the extra time. This is such an important listing for Emaar, and for UAE financial markets, that it has to be just right.

This is no ordinary IPO. Emaar plans to sell 25 per cent of the malls unit for Dh9bn, implying a value for the full unit of Dh36bn, or more than a tenth of the value of all the companies currently traded on the Dubai Financial Market.

The process by which it got to DFM is also unique. Mr Alabbar originally said he wanted to go for a listing on Nasdaq Dubai and the London Stock Exchange, but then changed his mind when DFM and UAE regulators indicated they were willing to be flexible with the rules regarding the amount to be floated (down to a minimum of 25 per cent from a minimum of 55 per cent) and capital sell-down (not previously permitted in DFM listings).

It is also unusual in other ways. Although described variously as an IPO or a “demerger” from the current parent Emaar Properties, it will in fact be a hybrid: new shares will be listed, but existing shareholders will retain control because Emaar Properties will own 75 per cent of the new company.

Emaar has said it will give existing investors some form of preferential treatment in the new issue, which is good news. It would be a shame to see one of the UAE’s flagship companies sold exclusively to foreign institutions. But it adds to the tricky mechanics of the IPO.

Finally, the advisers, and Mr Alabbar, will have to work out exactly what is being sold, and why.

The first question is the easier to resolve, judging from public announcements. The Dubai Mall, Dubai’s Marina Mall, and the retail facilities around those two, including the Souk Al Bahar in Downtown as well as the Gold and Diamond Park, look to be the assets subject to IPO.

The good news is that, according to two recent pieces of research, these businesses are going like trains. Moody’s Investors Service this week gave the malls group a good credit rating, reflecting the “robust business profile, mature assets and stable maturing cash flows”.

Moody’s mentions the fact that the malls business is wholly Dubai-centric, and that The Dubai Mall itself contributes 80 per cent of the unit’s revenue, as potentially negative factors. But those could equally be regarded as positives in today’s booming economy in the emirate.

Another piece of analysis, from analysts at JPMorgan (one of the banks hired by Emaar to work on the IPO) breaks down the figures in more detail, and a similar picture emerges of the strength of the malls business. In the first quarter of 2014, malls and retail accounted for nearly 70 per cent of gross profits of the whole of Emaar Properties.

But what also shines through from the JPMorgan research is that Emaar’s traditional business of property development is booming. Prices, margins and sales are all rocketing, and the shares are a buy at the current Dh10.05, the bank says.

This could be the trickiest part of the advisers’ work this summer: how to explain to Emaar Properties shareholders that (partially) spinning off the malls business is a good idea and will add value all round.

In short, how do you persuade them that they should pay up for something they already own, and which is doing so well?

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