Damas predicted to hit crest then slide

This morning's trading debut by Damas International is not expected to gain the long-term attention of investors.

DUBAI // This morning's trading debut by the UAE jewellery retailer, Damas International, is not expected to gain the long-term attention of investors, with analysts forecasting a short positive performance followed by a dip in price. A lack of liquidity and low trading volumes has plagued the Dubai International Financial Exchange (DIFX) since it was formed in Sept 2005. However, many analysts have considered the Damas listing - the first by a retailer - as a way to test the appetite of international investors for local firms.

The test was to have been Future Pipe Industries, until the Dubai pipe maker shelved plans to raise US$554.4 million (Dh2 billion) through an initial public offering (IPO) and subsequent listing on the bourse in May. "Stocks have not performed well on the DIFX," said Alaa el Din Moustafa, the chief dealer at EFG Hermes. "Most are below the initial offering price." Mr Moustafa added that he did not have major expectations from the Damas listing. "It may trade above the IPO price for a few sessions, but could fall well below, like others have," he said. DP World, the fourth-largest global port operator that is owned by the Dubai Government, raised $4.96bn when the company listed on the DIFX last November.

Although it has been the most high-profile listing on the bourse so far, DP World stocks went on to trade at 39.7 per cent below the IPO price. The Dubai construction and speciality contracting firm, Depa, provided another example of a slide in share price after listing, with the company trading 10.96 per cent below the subscription price. It appears unlikely that the Damas listing will spur trade on the DIFX, which was created as an alternative platform to provide international investors with an opportunity to enter emerging markets. Besides the liquidity on the exchange, the number of listings and quality of the firms being traded on the bourse were still a problem, said Mr Moustafa.

"As far as Damas is concerned, there is no research available to predict its potential," he said. "However, fundamentally the firm is strong and its shares are not a bad investment." Mohammed Ali Yasin, the managing director of Shuaa Securities, said that more listings were a positive sign, but added that "everyone realises that the exchange will not take off without the public being involved in trading".

Damas follows the business software firm, NetSol Technologies, the first US-based firm to cross-list its shares on DIFX earlier last month. Damas, which has more than 100 years of operational history in the region, has raised $270m to fund its horizontal and vertical expansion. The UAE-based electrical and mechanical contractor, Drake & Scull International (DSI), is the latest local firm pushing its IPO today and seeking a subsequent listing on the Dubai Financial Market (DFM).

DSI's move comes at a time when the Dubai bourse is also struggling in terms of liquidity and the falling value of trade. With investors waiting for the traditionally low-trade summer season to end and geopolitical tensions to settle down, analysts do not expect the DSI offering to give a stellar performance. "The market conditions are bad right now, which is evident from trading in both Abu Dhabi and Dubai bourses," Mr Moustafa said. He added that most investors were away on summer holidays, which could also negatively impact the DSI offering.

"I don't think this will be very heavily oversubscribed," he said. "This will be an IPO which will lack lustre." DSI is planning to raise Dh1.198bn offering 1.19 billion shares, which represents 55 per cent of the company. Ajman Bank was the last firm to list on DFM. The sharia-complaint lender's public offering was 88 times oversubscribed. [e-mail]