The Dh2.5 billion IPO of Dubai Parks and Resorts is to become a litmus test for investor sentiment as the emirate’s benchmark index fell into bear territory for the second time this year.
Dubai Parks yesterday announced big levels of oversubscription for its offering, with some of the most prestigious investors in the region queuing for shares in the company.
But some investors have become uneasy because of recent weakness in the Dubai Financial Market, where the IPO will begin trading tomorrow. Last week the healthcare and education start-up Amanat was the first IPO to fail to achieve a first day premium on the DFM for five years.
“We have had a great reaction to our IPO in which we strategically retained a specific tranche for retail investors so that they received a favourable and higher allocation, ensuring that more people could share in the growth of Dubai Parks,” said Raed Al Nuaimi, the chief executive of Dubai Parks.
The offer was 65 times oversubscribed by institutions, including sovereign wealth funds like Kuwait Investment Authority and Qatar Investment Authority, as well as big global investors and regional family offices.
The tranche reserved for UAE investors, some 40 per cent of the IPO, was oversubscribed 10 times, with institutional and high net worth individuals seeking nearly 14 times the number of shares on offer. Individual retail investors oversubscribed by 1.63 times.
“The low participation by retail investors tells me that the flipping opportunity has been reduced and therefore I wouldn’t be surprised if we saw a below-par opening on this stock, considering current market conditions,” said Mohammed Ali Yasin, managing director of the brokerage firm NBAD Securities.
“It would be a disaster if another IPO opens below par in the sense that it would give a very negative indication to investors,” he added.
The DFM General Index has fallen around 4 per cent since the Amanat opening, mainly on fears for regional capital markets of the fallout from lower oil prices. Yesterday it fell 3.34 per cent, with the blue chip property group Emaar the biggest loser, down 7.04 per cent.
The quoted DFM stock was down 5.56 per cent.
Dubai Parks will be hoping its cushion of unsatisfied institutional demand will be enough to see it through what could be a testing opening session on the DFM, where retail sentiment often determines share performance.
Some fear that liquidity is becoming a problem for the market, with an estimated Dh10bn being sucked out via the IPOs that have been launched in the past two months, like Emaar Malls, Marka and Amanat.
“We believe Dubai Parks has the potential to generate significant value over the long term,” said Mr Al Nuaimi. “The strong response we have seen from both institutional and retail investors validates the project’s future prospects.”
fkane@thenational.ae
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