Stock - DFM / Dubai Financial Markets
Another Dubai mega-enterprise makes the transformation from private to public. Tecom represents the second of the 10 listings Dubai is planning for. Image Credit: Bloomberg

Dubai: Tecom Group's share price gained 1 per cent in the first couple of minutes of making its debut on Dubai Financial Market. With this, another of Dubai’s high-visibility entities has made the transition from privately held to listing on the DFM. Ahead of the stock – the IPO for which drew record over-subscription from retail investors – going live, Tecom released its financials for the last three years.

The Tecom stock, which was sold at Dh2.67 a share had volumes of 28 million plus shares traded in the first 30 minutes. At 11.23, Tecom is down 6.36 per cent to Dh2.50, caught in the general dip that DFM has been experiencing. The stock had dropped by more than 14 per cent in afternoon trades, with volumes at nearly 155 million shares. By 2.46 pm, the decline was clipped to under 10 per cent. 

Tecom's volatile Day 1
Globally, recession fears are increasing, and there is a fear that Europe could slide into a deep recession if Russia stops natural gas exports. Given the worsening risk sentiments, it is not a surprise that Tecom shares underperformed.

"Moreover, Tecom's expected dividend yield of 6 per cent was not considered high enough in the changing scenario. Yields worldwide in bonds and stocks have risen sharply after the more than expected rate hikes from US Federal Reserve. So markets expected Tecom to pay more."

- Vijay Valecha, Chief Investment Officer at Century Financial.

Net profit for 2019-21 stayed were at Dh633.59 million, Dh579.08 million, and Dh568.83 million, respectively. Solid numbers given that for two of those years, there was the pandemic to deal with and what it meant for the way Tecom’s tenants wanted to work. Tecom remains systemically one of the most important landlords in Dubai of commercial real estate, with 10 business hubs. These include the consistently in-demand Dubai Internet City and Media City, and the emerging Dubai Design District.

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The improved numbers are starting to be sighted for this year, with Q1-2022 profit at Dh190.26 million against last year’s Dh144.29 million. Tecom had earlier said it continues to do well on the leasing side, with solid retention rates on longer leases. This again is significant as businesses, especially tech and tech-focussed ones, are still flexible on hybrid working.

“We also own a land bank which can be leased out directly or developed for rent, providing greater opportunities to attract new tenants and customers or allow existing ones to expand operations,” said Tecom in its listing prospectus.

Switching assets
As part of a pre-IPO restructuring exercise, Dubai Industrial City llc was transferred into Tecom Group by another entity within DHAM Group.

Plus, certain entities, investments, land banks, infrastructure costs, associated government grants, land
sale advances and amounts relating to capital work in progress were transferred out to certain other entities in the DHAM Group and Dubai Holding Group.

"While the transfers occurred at various times, 1 January 2022 was the effective date for all legal entity, land and investment beneficial ownership transfers," Tecom said.

Dividend pull

For Tecom shareholders, the other big notable is the Dh800 million annual payout Tecom mentioned ahead of the IPO. The first tranche will be released in October. “For investors who bought both DEWA and Tecom, dividend payments in October will give them cheer,” said an analyst.

Tecom had paid a pre-IPO dividend of Dh700 million to DHAM, its prime shareholder.

Business parks have the pull
The business park development and leasing model has been a particular favourite for blue-chip entities in Dubai and Abu Dhabi. The AD Ports Group is taking a multi-cluster approach to its Kizad development, while DP World is another to have seen immense potential from recreating free zones in some of the African markets where it has the rights to ports and terminals.

The same approach can be seen on the investment side too.

"Abu Dhabi Investment Authority (ADIA) bought a 9.2 per cent stake in India's Mindspace Business Parks REIT - and business parks have always been regarded as prime, long-term investment plays," said Sameer Lakhani, Managing Director at Global Capital Partners. "Investors would take the same approach to their exposures in Tecom."