Lessons to be learnt from Amanat debut

Amanat is left with the dubious distinction of becoming the first of the current batch of IPOs in the UAE to not get a first-day premium, and the first to trade below opening par value since Drake & Scull in 2009.

Did we witness a tipping point in the recent history of UAE capital markets on Sunday with the debut of Amanat on the Dubai Financial Market?

The “greenfield” start-up launched by Faisal Juma Belhoul, one of the country’s most successful entrepreneurs, got everything right in the run-up to the opening day. A sound business strategy of focusing on high-growth sectors in health care and education; a list of investors taking part that comprised some of the most prestigious and shrewd businesspeople and institutions in the region; and an offering to raise Dh1.37 billion that was 10 times oversubscribed by an enthusiastic public. What could go wrong?

The market reaction on the first day – an initial 20 per cent drop on heavy trading volume – proved that even the best-laid plans are sometimes not enough.

Amanat is left with the dubious distinction of becoming the first of the current batch of IPOs in the UAE to not get a first-day premium, and the first to trade below opening par value since Drake & Scull in 2009, at the height of the global financial crisis. Mr Belhoul put a brave face on it. He was a victim of the plunge in oil prices that shook all markets in the few days before the IPO opened. The share price would improve once the solid deal flow that he and his team are working on comes to fruition, some time early next year. The company had huge asset backing in the form of cash put up by his illustrious investors.

Time will tell if his long-term optimism is justified. But the first day’s fall sent a shudder through UAE financial circles. One IPO a month until the end of the first quarter of next year had been keenly forecast by market professionals, continuing the string of successful IPOs such as Emirates Reit, Marka and Emaar Malls.

Dubai Parks and Resorts is heavily oversubscribed and ready to go; Gulf Capital is widely reckoned to be on the verge of pressing the button marked “intention to float”; Al Habtoor has consulted bank advisers and it too is close to a final decision; Daman Investments has announced plans for an IPO in the first quarter of next year.

Talking through the consequences of the Amanat flop – there is no other word for it – with market experts, there is little to suggest any of those issues are being reconsidered, or that the companies are in danger of repeating the Amanat experience.

Dubai Parks is a different situation to Amanat. It has solid assets – land, contracts, semi-completed construction plans – and Dubai government backing. Gulf Capital is a class investment act that is unlikely to be deflected from its goal of listing in Abu Dhabi early next year. Al Habtoor, at a suggested $2.5bn, would the biggest of the current crop, and is still positive about its IPO plans. Daman is some way off still.

As things stand, none of these potential IPOs will be derailed by the Amanat experience. But the lessons should be learnt.

Amanat’s timing was unfortunate. The oil price fall, of course, walloped regional and world markets, but that was a factor entirely outside its control. However, other aspects of timing, and the structure of UAE IPOs, can be addressed by the investment banks and other advisers.

One suggestion for Amanat’s fall was that its debut day was also the closing day of the Dubai Parks offer to retail investors. Punters who had already taken up Amanat shares were keen to sell them to take up the last- minute offer in Dubai Parks.

It’s not certain this was a factor, but the lesson is: clear the runway before attempting another take-off. Get one IPO completely out of the way before launching another.

There is another significant lesson that has implications for UAE retail investors. Amanat was arranged under the traditional UAE IPO structure of selling a minimum of 55 per cent of the equity at par value of Dh1, as regulators insist.

Emaar Malls, on the other hand, was given an exemption to conduct a book building process that allowed discretion to attract a greater number of institutional investors at a price they helped set in a process they are familiar with.

Had that been done with Amanat too, institutional professionals would have been less likely to dump the stock on day one.


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Published: December 2, 2014 04:00 AM


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