Eagerly awaited Emaar Malls IPO draws nigh

Even in the crusty old word of finance, there is sometimes a moment or two of drama. For Dubai, the curtain opens at 10am tomorrow, when Emaar Malls makes its debut on the Dubai Financial Market.

The stage has been carefully set since the IPO was announced last March; the audience of international investors has been warmed up by the support teams, the investment bankers and other advisers on their global roadshows; the script, in the form of a 140-page prospectus, has been memorised by all the main actors.

But Thursday is the financial “first night”, and once the curtain lifts, the shares are alone in the spotlight. Do they thrill or do they flop? And can they look forward to a long and successful run on the world investment stage?

In the circumstances, flopping is virtually unthinkable. Even those market experts who wanted the shares priced lower down the range believe it is still good value at Dh2.9, and most expect to see upside on day one.

The obvious reason for this is the huge institutional and retail demand that has come for the issue from around the world. Even the Americans, renowned for their caution in approaching regional investment, are said to have been persuaded by the Emaar Malls story.

And if western investing institutions want to sell at a quick profit early on, they will find buyers among regional institutional and retail investors who did not get the number of shares they wanted in the final allocation.

There have been some complaints this week, since the final price and levels of oversubscription were announced, that foreigners had been favoured in the allocation process; some suggested that foreign institutions would be given 10 per cent of their application, more than they were entitled to by the maths of a 30 times oversubscription but a lot more than the locals, who, it was suggested, were getting only between 2 and 3 per cent.

Emirates Investment Authority, which had a preferential 5 per cent share of the flotation, was ultimately treated as a local investor, which skewed the figures slightly. But, as the Emaar chairman Mohamed Alabbar explained, the aim was to have a balance of shareholders, and attract liquidity into the UAE. It has certainly done that.

Some retail investors might be harbouring negative feelings towards the stock, and might be immediate sellers, but only because they didn’t get as many as they wanted. Those who were after the minimum amount of Dh10,000 worth will get only Dh500. Sell in protest or hold on? The small amounts involved either way will not be enough to dent the overall positive feeling towards the issue.

So the question really is: how far will it jump on the first day? Brokers are already reporting that some investors are putting sell orders in the market at Dh4, which would be an instant 38 per cent profit if buyers can be found at that level.

There’s no certainty they will. Trusted sources say they expect an upwards “blip”, but not of Marka proportions. Those shares briefly doubled on opening, before settling back to a more modest but still handsome profit of 59 per cent on the first day. (They’ve since settled down to Dh1.45.)

As Emaar was priced by the book-building process, the possibility for a first-day spike is more limited; and local markets have been taking something of a breather after the exertions of earlier this year. If the curtain falls on Emaar Malls at Dh3.4 or so, most investors will be delighted.

If not, and they want to invest elsewhere, why look any further than Emaar Properties, the founder company of the malls group? It will still own 85 per cent of EMG, and its shareholders will be in line for the big bonuses generated by the IPO and its own recent refinancing. These dynamics on their own seem enough to ensure Emaar Properties’ continuing share price strength.

There is even plenty of scope for a rerun of the EMG success, with IPOs on the cards for Emaar’s Egyptian and hotels business in the near future. After market close tomorrow, there might be calls of “encore”.

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