Three big listing promise to revolutionise the DFM

IPO fever is about to hit the UAE and it will be fascinating to watch the markets when the Emaar Malls, Damac and Marka listings take place.

IPO fever is about to hit the UAE. Before the end of this month, barring last-minute hitches, three new stocks will be listed on the DFM, including Emaar Malls, the biggest initial public offering in Dubai since 2007.

In fact, October 2, when trading in the malls business begins, promises to be a mini-version of the “big bang” that blew open the London Stock Exchange in 1986. Things were never the same in the City of London after that, and the transformation that looks set to take place in the Dubai Financial Market – and by extension in all UAE markets – will be profound.

The country’s retail investors are about to embark on a stock market roller coaster the like of which the hitherto comparatively laid-back markets of Dubai and Abu Dhabi have not experienced before.

Before Emaar Malls, there will be (again barring any late delays) Marka, the upmarket retail and leisure outfit backed by some of the biggest names in UAE business, which will finally start trading on the DFM. Given the level of oversubscription for the offering, the first day’s trading should be fascinating to watch.

There will also be the DFM listing of Damac shares. Currently quoted in global depositary receipt (GDR) form in London, some 75 per cent of GDR holders have given their approval to the scheme to list in equity form on the DFM. Again, given Damac’s strong brand and performance, and the rise in the GDR price this year, the start of trading will be a must-watch.

Abu Dhabi might even get its share of the excitement, with the potential IPO of the investment group Gulf Capital. But although plans to float on the Abu Dhabi Securities Exchange are well advanced, it may be cutting it fine to make it into sizzling September.

For these events, retail investors will be able to use an array of techniques familiar to western share-traders, but little-known previously in the UAE. Thanks to technological and systems innovations by the DFM, brokers and some of the banks, investors should have physical ownership and entitlement to their stock on the opening day.

This opens up the possibility of what is known in the west as “stagging” or “flipping”: selling shares at the earliest opportunity in the expectation of a quick profit.

This used to be all the rage in the great era of privatisations in the West, when investors assumed the issue would have been marginally undervalued in pricing so there was a built-in profit at the start of trading.

It will be interesting to see what effect the book-building process has on the potential for stagging. In another first for the DFM, Emaar Malls will be priced via a book-building process, which should in theory limit the potential for a quick profit. But we shall see.

The privatisations in Europe and elsewhere opened up a whole new class of small shareholders and elevated financial matters to genuinely popular concern and debate. Although you can question the long-term value of “popular shareholders”, it was a real change of culture in those countries where it took place, with ramifications in social, political and cultural circles.

So expect a period of transition, even the risk of a tiny bit of chaos, on the opening days. Despite the DFM’s best-laid plans, a transformation of this scale is always prone to error, mainly human.

But will the system be able to handle it? Some have suggested that the sheer volume of new Emaar Malls shares, for example, will swamp the market on day one, drain liquidity from other stocks, and unhinge the DFM.

There is no real reason to conclude that this will be the case. The DFM has grown and matured in recent years. Planning for the new wave of IPOs has been in progress since 2009, officials point out.

And the exchange is simply a much bigger machine than at any time in its 14-year history. With Emaar Malls, it is being asked to swallow 1.9 billion shares with a minimum value of Dh5.33bn. The total value of shares traded on the market for the year to date is Dh300bn in 126 billion transactions. The whole floated value of Emaar could be turned over in one week’s trading.

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