Eshraq listing attracts big early interest

Institutional investors are eager for shares in the IPO of Abu Dhabi developer Eshraq, one of the bankers involved in the offering says.

April 19, 2011 (Abu Dhabi )Mohamed El Fayouny, is shown a model from a Eshraq representative at City Scape in Abu Dhabi April 19, 2011 (Sammy Dallal / The National)
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Eshraq, the Abu Dhabi property developer, has already received enough interest to sell the shares it plans to list next month, the head of the lead receiving bank says.

"The level of interest we've had from investors means the IPO [initial public offering] will be fully covered," said Majd Maaitah, the director of securities services at the National Bank of Abu Dhabi.

Last week, Eshraq announced plans to raise Dh825 million (US$224.6m) in an IPO scheduled for this Sunday, which would make it the first UAE company outside of the insurance sector to test the public market in two years.

The developer will sell 55 per cent of the company in the offering, with shares initially priced at Dh1.

Eshraq was formed in 2006 by a collection of investors from Saudi Arabia and the UAE. It has three projects in the preliminary stages of development: Marina Rise on Reem Island; the Gateway development on Zayed Bay in Abu Dhabi; and Jumeirah Rise in Dubai.

Eshraq's main activity in recent years has been selling land. The company has sold 19 of the 21 plots it owned on Reem Island, officials said yesterday.

In its prospectus, a copy of which has been seen by The National, Eshraq reports a profit of Dh349m in 2008 and Dh109m in 2009, mainly from land sales.

A projected income statement, based on a study last year, forecasts a net profit of Dh826m for next year based on revenue "from the properties sold on the expected handover date", primarily in Marina Rise. The projected net profit falls to Dh103m in 2013, according to the statement.

The company expects to use money from the IPO to start construction in the next few weeks on Marina Rise, two towers on Reem Island.

"The area is having difficulty but it doesn't mean there is no money," Saleh Mohammed bin Nasrah, the chairman of Eshraq, said yesterday. "Many investors are looking for opportunities."

Eshraq's target of Dh825m would value the company at Dh1.5 billion.

It is taking the unusual approach of allowing investors to buy shares for a 25 per cent down payment, plus a fee of .02 fils a share. The balance will be due within two years, at the direction of the company's board of directors.

"Real estate companies need money over time, they don't necessarily need it from day one," said Elias Kawar, an investment banker with Royal Capital, the lead manager of the IPO. "It is prudent to call in capital when it is needed."

In essence, the company is selling property before construction, said Chet Riley, an analyst with Nomura Securities.

"They are replicating the off-plan model in the capital market structure," Mr Riley said. "But there is a collection risk. That's why the off-plan market fell down."

The subscription is open only to GCC and UAE nationals because of restrictions on non-citizens owning land in the UAE, company officials said.

Most of the interest has come from institutional investors, Mr Maaitah said.

In 2007, Eshraq announced a $272m private stock offering managed by Abu Dhabi Islamic Bank. At the same time it announced plans for Marina Rise, which was originally described as a Dh7.5bn development covering more than 90,000 hectares.

The company also expects to explore projects in Sharjah and Saudi Arabia.

Eshraq's IPO is the third in Abu Dhabi this year after the insurance companies Wataniya and Insurance House tapped into the market. All three have been relatively small in size.

"We all agreed that there is a need for small IPOs. We don't have space for the billions [of dirhams]," Mr Maaitah said.

NBAD has been involved in the IPOs of all three companies.