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Tightened liquidity conditions and stricter lending requirements in the region have prompted companies to seek alternative financing avenues in the last few years. Among the various financing sources being explored, raising money through the capital market has become a preferred channel to access funds for future strategic growth. Indeed, a number of real estate companies in the UAE have tapped into public funds to accelerate their development projects over the last five years.
In 2014, Emaar listed its retail arm in an initial public offering (IPO), which at the time was the largest on Dubai Financial Market (DFM) since 2007. The company raised $1.58 billion (Dh5.8 billion). In July last year the developer’s Egyptian arm, Emaar Misr, went public through the Cairo Stock Market. Recently, Dubai Parks and Resorts raised Dh1.68 billion in a rights issue in May.
Dubai Parks and Resorts earlier raised Dh2.5 billion in an IPO in 2014. The funds from the recent rights issue, however, will be used in a new project, Six Flags Dubai. “We have successfully raised Dh1.68 billion in an oversubscribed rights issue to fund our growth strategy by adding a fourth theme park to our destination,” said Raed Kajoor Al Nuaimi, CEO of Dubai Parks and Resorts. “The addition of Six Flags Dubai will enhance our already extensive offering and further establish our position as the Middle East’s largest leisure and entertainment destination.”
Dubai Parks and Resorts secures Dh993m loan for Six Flags theme park
Federal Law No.2
Companies have received support for accessing funds through IPOs as a result of regulations such as Federal Law No.2 of 2015 on Commercial Companies. The new law stipulates that only 30 per cent of a public joint stock company’s (JSC) share capital must be offered to the public in an IPO, allowing companies to retain the remainder. Also, the minimum share capital is now Dh30 million for a public JSC and Dh5 million for a private JSC, increasing from Dh10million and Dh2 million respectively.
“The intention of these various changes is to stimulate interest in companies wishing to grow their businesses through UAE capital market fund raising, while at the same time provide more comfort and transparency to potential investors, especially non-professional investors,” says Alan Wood, Middle East M&A Leader at PwC Legal Middle East in an report, New UAE Commercial Companies Law: Legal reforms to strengthen the legal and regulatory landscape of doing business in the UAE, in May 2015.
Among the recently announced IPOs in UAE is Abu Dhabi-based investment company Marya Group, which said in a statement that it has increased its investment portfolio to over Dh3.67 billion. The company said it maintains “a solid financial position” and is “focused on making private and public equity investments in cash-generating business with strong fundamentals in the Middle Eastern, European and American markets”.
There have also been speculation around an IPO from Habtoor Group, following a media report citing Mohammed Al Habtoor, Vice-Chairman and CEO, saying the company had all documents in place to go public. The group later clarified to Gulf News that it does not “anticipate taking the company public in the foreseeable future”. Meanwhile, Emaar also told investors in May that it could “monetize core assets” through IPOs of certain divisions, such as the Indian and Turkish units, or through real estate investment trusts.
Requests for IPOs rise
Speaking on the sidelines of the 10th GCC Regulators Summit in Abu Dhabi in January, Obaid Al Zaabi, acting CEO of Emirates Securities and Commodities Authority (Esca), said companies from the real estate, retail and investment sectors were expected to float their shares on the UAE capital markets this year. “We’ve been receiving requests for IPOs since the first half of last year,” Al Zaabi said. “We’re studying them, but the decision comes down to the companies, not the authority.” Esca is updating laws on corporate governance based on a new company law in 2015.
At the moment, there are limited opportunities for retail investors to participate in the real estate and infrastructure sector in the region. There are only a handful of large developers, such as Emaar and Damac, that have tapped into public funds for strategic growth. However, tighter regulatory framework around IPOs as well as improving industry performance will allow smaller companies with sound fundamentals to benefit from the capital markets.
Nonetheless, there are short-term worries tied to the oil price performance, job scenario and overall real estate demand. This has impacted IPO activity in the first half of the year.
The IPO rush in UAE real estate market
According to the quarterly IPO Market Watch from PwC, IPO activity in the GCC in the second quarter remained low as oil prices and global economic volatility, regional political unrest as well as the recent UK vote to leave the EU, continued to bring uncertainty to GCC markets.
“While uncertainties with oil prices remain and regional geopolitics continue to play out, we would expect to see continued volatility in regional equity markets,” says Steven Drake, Head of PwC’s Capital Markets and Accounting Advisory Services team in the Middle East. “Valuations tend to fluctuate significantly in times of uncertainty and investors tend to stay out of equities. Any significant IPO activity we see in the short to medium term is therefore likely to be government sponsored.”
Source: Manika Dhama, Special to Property Weekly
Research Manager, Cavendish Maxwell