You can only stock up on Facebook shares later

Investors "like" the idea of an initial public offering (IPO) from Facebook, which was posted on February 1, and there are friends in the UAE who would like to sign up.

When professional networking site LinkedIn launched its IPO last year, the stock price opened 80 per cent higher than its offer price of $45 (Dh165) a share, and topped out at $115 a few hours later. So it's no surprise that prospective investors are even more excited about the forthcoming Facebook IPO — even though LinkedIn has underperformed since its listing and is currently trading in the $90s.

And, as was the case with LinkedIn, retail investors are very likely to be left out of the launch party. IPOs in the US are mostly institutional plays.

"This is the cold reality of IPOs — not all are open to the general public," says Dan Dowding, senior executive office Middle East and Asia, Killik and Co. "Companies increasingly offer their shares only to fund managers or institutional investors on the grounds that it is too expensive to allow the retail investor to get involved."

A different story

But, once Facebook shares begin to trade on the market, it's a different story: it is very easy to trade in global stocks for investors based in the UAE.

When it is listed, a stock automatically begins to trade on the market and investors can buy shares using online global trading platforms, like Interactive Brokers, Charles Schwab International, among others.

On these platforms it is possible to trade in real time in everything from equities to derivatives, mutual funds, commodities and currencies.

To buy shares, money must be transferred to the trading account after it is opened. Funds from the sale of shares will be credited to your account.

Clients can also make offline trades through licensed financial firms such as Barjeel Geojit Securities, Killik and Co, among others. Some banks in the UAE also facilitate trades and settlements on global stocks for their clients.

"The choice of the trading platform is therefore crucial and the simple rule of thumb is to choose brokerage firms that are well capitalised and has a retail focus," says Krishnan Ramachandran, chief executive of Barjeel Geojit Securities, Dubai.

The more difficult decision for investors, is when to buy a listed share. A hot share, like Facebook, is likely to rocket when it is listed.

When to buy

"History has shown that for a retail investor, it's better to wait a little bit and let things calm down because people will buy it and sell it within the first few days," says Vince Truong, a US-certified financial planner at Holborn Assets, Dubai. "But if you have a proven winner like a Google, then long term you are going to get value at some point. But if you try to buy right when it begins to trade you might very well get burnt." But Dowding points out, with LinkedIn, "if you had purchased the stock immediately on open, you could have still made money. But if you see how the stock has traded since, it has been a rollercoaster ride."

And, investors in Facebook need to look beyond the hype, says Neil Stewart, senior financial planner at Acuma Wealth Management. "What does Facebook's future growth rate look like? Does [Mark] Zuckerberg see value in exploring untapped markets or will his drive and passion diminish once the IPO is under way?" asks Stewart.

One of the biggest advantages for investors in the UAE buying shares like LinkedIn, Google, Coca Cola or Facebook in the future, is that the gains are non-taxable.

"For a UAE resident investing can be extremely tax efficient," says Dowding. "A British citizen resident in the UK has a Capital Gains Tax Allowance of £10,600. Any gains made over this amount will suffer a capital gains tax. If he or she is resident in the UAE, providing certain criteria are met, they will not be subject to capital gains tax at all."

Segregated platforms

Ramachandran warns against unlicensed entities operating in the UAE that promise to manage clients' money by buying and selling shares of global stocks. He says that such brokerages may not have segregated platforms for trading retail clients' money and what is their proprietary trading. Investors should also compare what different brokers charge for their trades.

With a registered broker, the formalities to open an account are quite simple and should take about a week. The paperwork typically involves account opening forms and KYC (know your customer) documents which includes proof of residency, passport, bank information and net worth disclosures, among others.

How much is Facebook worth?

The company was projected to surpass $3 billion in revenue in 2011, but it is expected to reach a valuation of up to $100 billion by the time of its initial public offering later this year.

Before a company goes public, stocks are bought and sold on secondary private markets. The chart below shows how the company's valuation has grown over time based on investments.

Date, valuation, investors

January 2012 $83.5 billion. Value based on private secondary markets.

March 2011 T. Rowe Price invests $190.5 million through various funds for a stake less than 1 per cent.

March 2011 $65 billion. General Atlantic purchases shares from former Facebook employees for a 0.1 per cent stake, CBC reports.

February 2011 $52 billion. Kleiner Perkins Caufield & Byers invest $38 million for a stake less than 1 per cent, The Wall Street Journal reports.

January 2011 $50 billion. Goldman Sachs and DST Global get a 1 percent stake for $500 million. Goldman's overseas clients also invested $1 billion.

June 2010 $23 billion. Elevation Partners spends $120 million for shares in the secondary market for 1.5 per cent stake.

May 2009 $10 billion. Digital Sky Technologies (later DST Global and Mail.ru) invests $200 million for a 2 per cent stake.

January 2008 European Founders Fund invest $15 million.

March 2008 $15 billion. Li Ka-Shing invests a second $60 million for a total stake of 0.8 per cent.

November 2007 Li Ka-Shing invests $60 million.

October 2007 $15 billion. Microsoft pays $240 million for a 1.6 per cent stake.

September 2006 $900 million. Offer by Yahoo that was turned down.

June 2006 Interpublic buys a 0.5 per cent stake for less than $5 million.

April 2006 $500 million. Greylock Partners, including Meritech Capital Partners, the Founders Fund and Accel invest $27.5 million for a 1.5 per cent stake.

January 2006 $750 million. Offer from Viamcom that was rebuffed.

April 2005 $100 million. Accel Partners pays $12.7 million for a 15 per cent stake. Jim Breyer also puts up $1 million of his own money.

February 2005 Maurice Werdegar of WTI Partner provides a second $300,000 credit line and a $25,000 equity investment.

October 2004 Mr. Werdegar provides a $300,000 three-year credit line.

2004 Peter Thiel puts up $500,000 for a loan, later converted to a 10 per cent stake and eventually reduced to 3 per cent. Mr. Thiel also brings in Reid Hoffman and Mark Pincus

— Source: New York Times