Air Arabia's public issue sucks liquidity out of market

Dubai: The Dh2.56 billion public issue by Air Arabia has substantially reduced liquidity on the local bourses and has cast a shadow on the viability of other big issues planned this year.

The Air Arabia IPO was oversubscribed 150 per cent, attracting more than Dh3.7 billion in pledges from retail and institutional investors, including international banks. The IPO, the largest ever in the UAE, attracted 40,000 investors during its 10-day offer period last month.

Despite the announcement that the issue was oversubscribed 1.5 times, many big investors confirmed that they have received 100 per cent allotments.

"If there was a 150 per cent oversubscription as claimed, the chances of people getting full allotments would be dim. From the initial information available, the retail segment of the issue fell short of expectations, but subscriptions by institutions and high net-worth individuals helped it achieve subscriptions above the target," said an investment banker.

While the company is in the process of completing the share allocation process and refunds, it is yet to announce the listing date.

"There is a debate in the market about the listing date of Air Arabia IPO. If the company decides to list the shares immediately, it is unlikely to command any premium and is likely to depress the secondary market. On the other hand if the listing is delayed it will affect the market liquidity, affecting the viability of other IPOs in the pipeline," said a market source.

Gulf equity markets have been going through these wild liquidity gyrations due to huge amounts of liquidity being sucked out of the market by large IPOs. The Saudi stock market crashed about 5.7 per cent at the beginning of the week as investors sold heavily to subscribe to the $1.8 billion Kayan Petrochemical IPO. Last week Doha Securities Market Index shed close to five per cent in anticipation of the Al Khaliji Bank IPO.