Marka offering a throwback to good old greenfield IPOs
In the West, it’s always an encouraging sign when the directors of a public company buy shares as their own personal investment in their firm. If the bosses back the company with their own cash, you can be pretty sure they will be incentivised to make it work, and maximise their personal return.
I see the initial public offering of Marka, the start-up that was 36 times oversubscribed when it offered public shares on the Dubai Financial Market, as a similar exercise. The bosses in this case are not directors or executives of an existing business, but they are some of the leading lights of the UAE business scene.
In effect, they have sat down with professional advisers, analysed the economy of the UAE, and looked for the best personal investment opportunity. The list of founding investors reads like a Who’s Who of the Emirates business scene. These people understand Gulf markets, they understand business, and they are not afraid to back their judgement with cold, hard cash.
The question with the IPO is: should other smaller investors follow their example?
The sectors they have chosen for Marka’s focus are two areas that the UAE is undoubtedly good at: food and shopping. Go into any of the big malls in Dubai or Abu Dhabi virtually any evening of the week, and you will see the proof of the synergy between these sectors.
The best restaurants and cafes are packed; the shops, including the upmarket ones, are doing a roaring trade. It’s all part of the recovery of the UAE economy that has been under way for the past two years, and which – barring major external shocks – looks set to continue at least until Expo 2020.
Marka’s strategy is to capitalise on this undoubted demand in the UAE, and to roll the same formula out across the Gulf, to other GCC states where the same appetite exists for food and fashion, but where perhaps the offering isn’t quite so sophisticated.
As with any investment start-up, there are risks and variables. Marka hasn’t actually traded at all yet, so there is no track record on which to base a judgement; much will depend on the quality of operational management and their ability to secure prime sites and the best brands; external macroeconomic or geopolitical factors could blow current assumptions about the potential size of the market off course.
Nonetheless, with a favourable economic background (Dubai, for example has reassessed its GDP forecast for this year to 5 per cent), high disposable incomes, more credit availability and surging tourism, the prospects look good. Marka founders expect to be showing a bottom line profit of Dh65 million after five years.
We will see shortly whether the rest of the investment community shares the founders’ optimism, when the shares begin trading on the Dubai Financial Market. But with that level of oversubscription, the IPO would appear to be heading for a healthy after-market performance.
The other important thing about Marka is this: it is the first “green field” IPO in the region for many years. A green field is a start-up company that has no assets and is not a conversion from a different corporate type, like a limited liability of public joint stock company. It is formed for the purposes of buying and exploiting assets.
A legal expert with many years of experience in the UAE corporate world tells me that, for example, Arabtec and Aramex were greenfield models when they had their own IPOs many years back. They have since grown into two of the biggest businesses in the region.
Greenfield IPOs went out of fashion for a long time, partly because of the authorities’ unfamiliarity with a structure that was not directly asset-backed. With the arrival of Marka, it looks like this model is back.
The UAE has a reservoir of capital in the hands of wealthy, entrepreneurial individuals who want to maximise capital returns in a buoyant economy, and now they can use the financial markets again to attract more capital to these projects. It also gives other retail investors the opportunity to share in the expected upside.
It may be an incongruous thought, but you can expect more green fields in the desert.
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Published: May 6, 2014 04:00 AM