The UAE IPO juggernaut continues. The Salik announcement to list 20 per cent continues the theme of privatization of UAE assets and provide a platform for investors to channel their savings. This is particularly relevant given inflationary headwinds that have engulfed world markets.
We know that ‘defensive’ equity positions the world over have outperformed the ‘risk on assets. Lesser known is the fact that a dividend heavy index (The S&P 500 Dividend Aristocrat Index) outperformed the S&P 500 over the last 20 years (in excess of 20 per cent on a compounded basis). This suggests it is the total return that investors should be focusing on, in addition to their cashflow returns. This is particularly true as interest rates march higher.
Clued into cities’ growth ways
The Transurban Group company is an operator of toll assets in Australia as well as parts of the US, a company that has introduced AI and data monetization into its business model and even embedded itself into the urbanization of the cities it operates in. Investors, both in real estate and in capital markets in the UAE, know that Salik is similarly embedded into the very fabric of the urban development in Dubai.
Its growth - whilst organic and high cashflow generating - will provide insights into how developing communities evolve in various parts of the city as traffic patterns and movements can be scrutinized and developed. There is little doubt that various governmental agencies had companies like the Transurban group in mind when plans were first unveiled for the Salik IPO.
From surge pricing to consulting services, Salik has been a pioneer in the region (like many of Dubai’s initiatives). At base, however, there is an acute understanding that the nature of financial market returns will shift towards cashflow and dividend based plays. This is critical if the domestic retail and institutional investor base is to grow and become part and parcel of the capital formation process that is so necessary in the ‘financialization’ of the economy.
Investors are looking for stable annuity type returns, and historically in the UAE, they have looked abroad to fulfil their needs. The structure of returns have been predominantly capital-based in an era of low to zero interest rates. However, for a pension fund and institutional investor base to prosper, the entire gamut of market opportunities need to be offered. And Dubai’s moves in the capital markets follow earlier moves in the real estate markets.
For capital market investors, liquidity is a key component, and the fact that the number of listings are increasing - despite the scarcity of public offerings in international markets - is capitalizing on a shift of capital flows headed towards the region. Dubai, however, has had at its heart of decision-making, the interests of the small investor. Recent IPO announcements, as well as the ones on the anvil, are reviving the confidence of these growing number of investors calling Dubai and the UAE their home.
Capex-lite makes a neat fit
Those who do not want to indulge in day trading, but want a conservative-long term investor portfolio. This is why the ‘capex –lite’ model of Salik means that they will distribute all of their profits as dividends, further buttressing cashflows for the retail as well as institutional investors. This is path breaking and indicative of the reflection of knowledge of how returns are likely to accrue.
It is obvious that there will always be some that will continue to look for the initial ‘share price pops’ when the company commences trading. Equally obvious is the fact that there are a growing set of people that are looking for long term investments at decent valuation multiples. It is for these investors that IPOs like Salik will be ‘destination’ investments as the UAE marches forward towards becoming a global financial center.