Listings reveal a tale of two cities

Damac Properties and the Bank of London and the Middle East, the largest independent Islamic bank in Europe, illustrate a study in contrasts.

Damac Properties, the Dubai developer of blingy buildings, is days, perhaps hours, away from announcing its intention to float shares on the London Stock Exchange in an initial public offering, according to my sources.

Meanwhile, the Bank of London and the Middle East (BLME), the largest independent Islamic bank in Europe, yesterday celebrated the first day's trading of its shares on the Nasdaq Dubai stock exchange. (They closed unchanged at US$2.61).

It’s a tale of two cities, and of two listings, but it tells us a lot about the investment culture of the Arabian Gulf, and the motivations of investors and entrepreneurs in the region.

Why did both Damac – we believe – and BLME seemingly eschew the attractions of their natural investment hinterland, the countries that gave them their first break and the opportunity to become successful businesses at home?

They are two very different companies of course, and different factors came into play in their decisions to go abroad.

Take BLME first. Its reasoning is perhaps the most straightforward. Its origins were in the Gulf some seven years ago, when a group of Kuwaiti investors, led by Boubyan Bank, saw the opportunities of the nascent Islamic financial industry, and the attraction it would have for London-based investors.

They hired a team of mainly British bankers who shared that vision, and got to work setting up a business to bridge the gap between Europe and the Gulf, in which they have largely been successful.

Investor dynamics in Kuwait changed, especially during the financial crisis, and some of the original investors (who have put a total of about $250 million in the BLME business in two tranches) now want to realise some of their investment, or at least have a listed yardstick for its evaluation.

BLME could have gone for a London listing, but the natural market there, the Alternative Investment Market, has had a mediocre record in attracting new listings and trading volumes since the financial crisis.

Other regional exchanges presented problems too. Most (including the Dubai Financial Market and Abu Dhabi Securities Exchange) say that a company seeking a primary listing must have its business based in their jurisdiction, which rules out the London-based BLME.

So almost by default, Nasdaq Dubai, which as an international exchange, does not have the same regulation, became BLME’s choice. Note no new cash was raised in BLME’s listing, although the company retains the right to do so in the future.

Damac’s situation is rather different. A UAE and Gulf-based business from the start, with its distant origins in the money-spinning business that got food to American troops fighting Saddam Hussein in the first Iraq war, it has become synonymous with the glitz-and-glam Dubai property sector, and all that has involved over recent years of boom, bust and boom again.

Some Damac investors, led by the chairman and founder Hussain Sajwani, want to know how much their investment is worth on the open market, like their counterparts at BLME. They might also, as profit-motivated entrepreneurs, want to realise some of that investment, and put some back into the capital-intensive business of international property development.

If Damac had gone for a listing in a Gulf financial centre, its ability to dispose of the cash raised as it saw fit would have been curtailed by local company law, which insists funds raised must be ploughed back into the company.

Damac toyed with the idea of a Nasdaq Dubai listing, but, unlike BLME, decided that the exchange’s lukewarm record on trading volumes and new listings ruled it out of serious consideration, sources have said. London offers a higher valuation and more liquidity, the company apparently concluded.

It’s worth noting that neither Damac nor BLME have completely shut the door on their financial homeland. BLME retains the option to go for a secondary listing in London, if circumstances allow and the benefits are proven.

Damac is conscious of the high brand recognition it has in the Gulf region. Its London advisers recognise that it would be good to have some important regional shareholders after the London flotation, and are considering ways to attract Gulf investors in, perhaps with a separate book-building operation run by regional banks.

The two companies have reached diametrically different conclusions from similar predicaments. Which one has called the situation correctly will be proven in the cut-and-thrust of initial public offering launch and after-market trading.