Dubai: The DEWA IPO is open for subscription – and banks are already feeling the rush from investors. And there are many a reason as to why this is happening.
Since last November when Dubai announced that DEWA will be the first of 10 government owned enterprises to list, investors were fixated on the possibility of owning stock in Dubai’s utility services provider. An entity that extends its reach to all homes and businesses in the city, and everything in between.
Then came DEWA’s announcement that it will be paying out a ‘minimum of Dh6.2 billion’ a year over a five year period, with the first payments starting in October this year. “The DEWA share price range points to the company’s valuation in the Dh112 billion to Dh124 billion range,” said Sameer Lakhani, Managing Director at Global Capital Partners. “Coupled with the Dh6.2 billion a year dividend commitment, this indicates a yield of 5 per cent or higher.
“That immediately places the yield higher than the banks listed on DFM as well as other blue-chips. A 5 per cent dividend is as good as it gets for those investors eyeing a steady return.”
A 5% dividend is as good as it gets for those investors eyeing a steady return.
An immediate payout
DEWA plans to pay a first dividend payment of Dh3.1 billion after the IPO offering by October. (In January, the entity had made a dividend payment of Dh10 billion to the Dubai government.)
“The dividend policy is designed to reflect the Group’s expectation of strong cashflow and expected long-term earnings potential, while allowing the Group to retain sufficient capital to fund ongoing operating requirements and continued investment for long-term growth.”
Option to raise the stake
As of now, DEWA’s IPO is offering a 6.5 per cent stake to the public. This could be revised higher – “The selling shareholder reserves the right to amend the size of the offering at any time prior to the end of the subscription period at its sole discretion,” the application form states.
According to Vikram Venkataraman, an ex-banker and Managing Director of Vianta Advisors, "DEWA's IPO is timely for several reasons. Apart from reviving the stock market and giving more depth, listing of Dubai's crown jewels - one of 10 anticipated IPOs - should add one more significant source of foreign investments to Dubai' and reducing the preponderant reliance on property-related inflows.
DEWA has always been forward-looking and has a sizeable war chest - a dire necessity for investing in sustainable sources of electricity and water supply using cutting-edge technologies.
So far, on the DFM, real estate companies, telecom major du, and — to an extent — banks have been the most actively traded. In recent years, trading volumes have been on the lower side, compared to where the market was between 2005-08.
Analysts say the DEWA listing will trigger a shift in this trading pattern, and with foreign investor interest, it can create substantially more volumes.