When Meraas subsidiary Dubai Parks and Resorts announced its initial public offering in November the investment environment could not have been better for the developer to tap the markets to fund its Dh6.3 billion theme park project.
Marka Holding had broken Dubai's five-year IPO drought in April with a hugely oversubscribed listing on the Dubai Financial Market (DFM), followed by Emaar Malls Group in October, which saw a 21 per cent bump in share prices on its opening day. The DFM, up 47 per cent over the year at the time, seemed to be the ideal place to be.
But a month is a long time on Dubai’s ever-volatile bourse, and Dubai Parks and Resorts first day on the DFM did not go as planned.
In a week that the DFM saw some 7.6 per cent wiped off its total market value, shares in Dubai Parks and Resorts fell 9 per cent on opening on December 10 in Dubai, falling to Dh0.86 before settling at Dh0.91 at the end of the day.
The developer’s shares remain down 20 per cent and as trading began this year there were plenty wondering whether the equity market boom had had the wind firmly taken out of its sails. With oil prices down 45 per cent since June, the flurry of IPOs that had dominated the final months of 2014 looked unlikely to continue this year.
“Any prolonged weakness in global oil prices remains a key macro risk for the region,” says Sachin Mohindra, a portfolio manager at Invest AD. “A slowdown in implementation of infrastructure and other economic diversification projects is a related risk.”
But despite the DFM suffering its biggest one-day loss since the financial crisis struck the emirate with such fury in 2009, experts are broadly positive about the health of the bourse going into this year. Many still feel the IPO pipeline is unlikely to be badly affected by recent events, driven as they are by macro concerns about oil prices rather than Dubai’s fundamentals, which remain strong.
“Speculation and volatility are part and parcel of the game when it comes to investing in (an)emerging market,” says Harshjit Oza, the assistant director of research at Naeem Brokerage in Cairo. “The fall was widely expected given the correction in the oil prices.
“What DFM needs is more listed companies and I think it is happening with the IPOs we saw in 2014, and the upcoming pipeline,” he says. “ I think 2015 will be another good year in terms of IPOs.”
Indeed, in Dubai’s local retail investor-dominated market, peaks and troughs as investors look to cash in on high prices are no new phenomena.
It could even be argued the crash in prices that hit in December is broadly positive in that it has made share prices in some of Dubai's biggest companies more affordable. Take Emaar, the shares of which were trading at more than Dh11 in December and were hovering at Dh7.2 in the first week of January this year – but, crucially, were still up 16 per cent on the year.
While stock prices may have tumbled, Dubai’s blue-chip companies still look like a very good bet for investors.
“The recent market correction brought down valuations of a number of well-managed companies to attractive levels, especially considering underlying earnings growth. This makes us optimistic about GCC equity markets in 2015,” says Mr Mohindra.
“Although the uncertainty around oil prices may affect sentiment in the immediate short term, we feel that the encouraging fundamentals of companies, coupled with continuing high liquidity in the markets, should drive markets higher over the next 12 months.”
Sebastien Henin, the head of the asset management division at TNI in Abu Dhabi, expects as many as one IPO per month this year in the UAE across a range of sectors. It is a fair assumption that the property development sector will be well represented, given Dubai’s ongoing tourism building boom, but other sectors too are benefiting from solid growth across the country last year.
On Monday, Massar Solutions, a local vehicle rental and fleet management firm, said it planned to list 40 per cent of its shares on Abu Dhabi’s bourse, in what would be the first flotation on the emirate’s stock market since 2011. The company will seek to sell 240 million ordinary shares at Dh2.4 each between January 11 and 25, it said. This would value the IPO at Dh576 million.
“IPOs are back in the market. We should expect one IPO a month, all banks are active including TNI,” says Mr Henin.
“At the same time you have abundant liquidity in the market. Regarding company profiles it will be a mix, new sectors are expected to reach the market which is very good, the market is too concentrated in financials and real estate.” There has been a push from regulators in Dubai and Abu Dhabi for family firms to list on the capital markets for more than a decade, and with the rally and IPO results seen in 2014, analysts believe a case has been made for many that now is the right time – even if the events of the past few weeks have given pause for thought.
“Regulators across the region have initiated measures to encourage privately owned businesses to consider listings,” says Mr Mohindra.
“We believe that a number of these companies are evaluating an IPO however the actual timing will depend on prevailing valuation, liquidity and sentiment trends in 2015.”
But it has not been all positive from regulators. At the end of December, Bloomberg reported that the Securities and Commodities Authority was considering a ban on new listings of start-ups.
The SCA said listings would only be considered if they “intend to operate in an industry not represented on the UAE’s stock exchanges, and in an area of strategic importance to the economy”.
While for better or for worse there has been surge in activity on Dubai's and Abu Dhabi's bourses over the past 12 months, the profile of investors has been little affected by the recent upgrade of the UAE to emerging market status by MSCI.
As the recent crash demonstrated, both bourses remain dominated by retail investors as foreign investors and major funds keep their powder dry.
Analysts still expect the MSCI listing to have an impact, although they acknowledge that while this country is seen as largely an energy story, the volatility in oil prices will continue to keep many less experienced Middle East investors away.
“We expect a decisive increase from investors in our markets [because of the MSCI upgrade],” says Mr Mohindra.
“Whether or not this interest translates into investment flows in the short term would depend on absolute and relative valuations. The recent correction has brought valuations in line with other emerging markets and certain companies look much more attractive compared to three months ago.”
Mr Oza agrees, pointing out that a raft of IPOs from the non-energy sector this year could be just what the UAE markets need.
“The overall scenario for both public and private investment is changing in the region, with additional capital allocation from foreign investors expected to occur, and the UAE is one of the candidates to get the maximum pie,” he says.
“The increase in listed entities will surely have a positive impact.”
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