For rebounding Dubai IPO market, liquidity remains key

Dubai: The Initial Public Offering (IPO) market in Dubai is likely to see a rebound this year after a long period of lull, and analysts say the ability of companies to attract liquidity in the primary market would remain key.

The year started with the background of two primary offerings from Finablr and Network International preferring to list in London.

The Dubai Financial Market (DFM) said that they are looking at a strong pipeline of IPOs. “DFM has a healthy IPO pipeline, as currently we are at different stages of discussions with potential issuers including three companies from industry, oil and gas as well as health care sectors that are looking to list on our main market,” a Dubai Financial Market (DFM) spokesperson told Gulf News over email.

Regional companies have been shying away from listing on the UAE bourses because of lack of traded volumes. “Local exchanges have been going through a difficult time, exhibiting a slow down due to lower volumes and generally speaking a weak sentiment due to global economic unrest,” Issam Kassabieh, senior financial analyst — research department, Menacorp told Gulf News.

Regionally, total turnover tumbled 75 per cent in 2018. According to Manmore, the aggregate turnover for GCC countries stood at $283 billion in 2018 compared to $1 trillion in 2007. “The volatility in oil prices and over dependency of countries in the region on hydrocarbons continue to affect the attractiveness of local markets for initial public offerings. Ideally IPOs are done when liquidity in the secondary market is high,” MR Raghu, Managing Director at Marmore Mena Intelligence, told Gulf News.

Confidence

However, confidence is slowly returning on UAE bourses. This confidence is on the back of expectations of bank mergers, but the ability of companies to attract the pent-up demand for new offerings would remain key. Saudi Tadawul index has been on a firm footing ahead of the index addition to the MSCI emerging market index.

The Dubai Financial Market general index has gained 10 per cent since the start of the year, playing a catch-up on performance from the Abu Dhabi Securities Exchange General Index, which has gained 20 per cent in the past one year. The Saudi Tadawul index has been the best-performing equity market in the region, with 18 per cent gains since January 1.

It would depend on companies’ ability to attract capital for their business model — with some money, which was not invested in sluggish real estate market, still waiting on the sidelines.

“It [the listing drought] is all to do with valuations — which currently in the region especially in UAE are depressed, compared to London or most developed markets. Selling shareholders do realise that it would be a difficult task marketing to local investors who have stocks trading at single digit multiples in their backyard,” Charles-Henry Monchau, managing Director — CIO & Head of Investments at Al Mal Capital said.

Owners’ call

The DFM spokesman said the decision to list lies solely with the company.

“The decision and timing of an IPO and listing is solely owners’ call, but in all cases, we are actively collaborating with potential issuers, making them aware of the benefits of capital markets as well as explaining new or amended regulations to them. We want them to understand the IPO regulatory environment and prepare for the post-IPO corporate life,” the DFM spokesperson said.

Local companies such as Emirates NBD-backed Network International, and Finablr found home in London for their primary offerings.

“The DFM was one of the worst performing exchanges globally in 2018, having gone through the last 15 months without a listing, so it is natural that local companies prefer to list overseas if given the opportunity. Macroeconomic influences such as slumping oil prices also weigh down on the performance of the local stock exchange and ultimately affects investor confidence,” Mazen Boustany, Banking & Finance partner at Baker McKenzie Habib Al Mulla, told Gulf News.

Network International, which is listed in London’s secondary AIM market, gave a valuation of £2.8 billion, and was fully subscribed on the first day. Finablr is planning to raise $200 million through a book-building process in early May.

“Listing in the London Stock Exchange (LSE) gives companies in the Middle East larger exposure and a much wider investor base, which ultimately contribute to premium in their valuations. Furthermore, the LSE is much more liquid than local exchanges even in light of subdued IPO activity in global financial markets,” Boustany said.