Executives at Massar Solutions are confident its Dh576 million initial public offering will deliver value for shareholders despite volatility in regional stock markets.
Paul Greenwood, chief executive of the fleet management and vehicle rental group, formerly known as Al Wathba, said the company had taken a “conservative approach” to valuation in the run-up to its market listing. “This is a real tangible business, with a 15-year track record and real profits. It is not a paper tiger.”
He was speaking as Massar announced details of the planned IPO, which will be the first on the Abu Dhabi Securities Exchange in the recent wave of offerings on UAE stock markets.
About 40 per cent of the company will be sold by Massar's two shareholders – energy group Taqa and investment firm Invest AD – in an IPO that would value the company at Dh1.44bn,
The offering, for which the subscription period opens on January 11, will be open to Emirati citizens and institutions only. Approximately 240 million shares will be sold at Dh2.40 each, valuing the 40 per cent stake at Dh576m. Emirati retail investors will be eligible to subscribe to one fifth of the total on offer, with the balance reserved for national investing institutions.
Mr Greenwood explained that advisers Ernst & Young had valued the company in the range Dh1.5 billion to Dh1.7bn, but the company had decided to price the offer below the minimum “in order to ensure there is some upside left for investors”.
He added: “Our roots lie in Abu Dhabi, and the shareholders want to share the success of the company with all Emirati citizens. It is an exercise in wealth redistribution.”
The IPO terms have been specially approved by the UAE regulator, the Securities and Commodities Authority, because they go beyond the standard structure for a UAE offering.
The Dh2.40 per share rating was decided before recent market volatility on UAE markets related to the sharp drop in the price of oil.
“We did the exercise before the markets entered the recent tricky phase. Back then, the market as a whole was trading on a rating of 15 times earnings, and we priced it at 10 times. Now the market is at 10 times, but we think it represents very good value,” Mr Greenwood said.
Massar has been trading in the UAE as Al Wathba since 1999, from its origins as the fleet management business for the Abu Dhabi Water and Electricity Authority. It has recently diversified into car rentals, vehicle tracking and logistics, with about 450 customers.
Its biggest client now is BRF, the Brazilian food processing group known for its Sadia poultry range, which recently opened a $180m facility in Khalifa Industrial Zone Abu Dhabi. Massar has the contract for distribution of BRF products throughout the region.
Financials released with the IPO document show profits rising from Dh93.9m in 2011 to Dh129.4m in 2013.
For the first nine months of 2014, Massar made Dh64.9m. Mr Greenwood said the apparent slowdown in the rate of growth was due to one-off factors, including a delay in construction projects in the Western Region, where Massar was supplying vehicles, and provisions for businesses the group has since exited.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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Name: HyperSpace
Started: 2020
Founders: Alexander Heller, Rama Allen and Desi Gonzalez
Based: Dubai, UAE
Sector: Entertainment
Number of staff: 210
Investment raised: $75 million from investors including Galaxy Interactive, Riyadh Season, Sega Ventures and Apis Venture Partners
Why it pays to compare
A comparison of sending Dh20,000 from the UAE using two different routes at the same time - the first direct from a UAE bank to a bank in Germany, and the second from the same UAE bank via an online platform to Germany - found key differences in cost and speed. The transfers were both initiated on January 30.
Route 1: bank transfer
The UAE bank charged Dh152.25 for the Dh20,000 transfer. On top of that, their exchange rate margin added a difference of around Dh415, compared with the mid-market rate.
Total cost: Dh567.25 - around 2.9 per cent of the total amount
Total received: €4,670.30
Route 2: online platform
The UAE bank’s charge for sending Dh20,000 to a UK dirham-denominated account was Dh2.10. The exchange rate margin cost was Dh60, plus a Dh12 fee.
Total cost: Dh74.10, around 0.4 per cent of the transaction
Total received: €4,756
The UAE bank transfer was far quicker – around two to three working days, while the online platform took around four to five days, but was considerably cheaper. In the online platform transfer, the funds were also exposed to currency risk during the period it took for them to arrive.
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