20220912 salik
Salik's toll-gates offer a deep insight into Dubai's economic narrative. And with the IPO, the company is setting up for some turbo-charging of growth. Image Credit: Gulf News Archive

Dubai: Dubai’s toll-gate operator Salik's IPO, which opened earlier today at Dh2 a share, may already have hit the over-subscribed mark, according to reports. The IPO was priced at Dh2 a share, and analysts were sure that it would turn into one of the heaviest subscriptions to date for a company listing on DFM.

The toll-gate operator straight away went for a fixed price rather than an indicative price band. The Dh2 price was announced via advertisements in local media, and was ‘determined following investor engagement that saw significant strong initial demand indications from both local and international investors’. 

The pricing has taken analysts by surprise, who had been thinking a per share price upwards of Dh2.60. “Salik could have commanded a share premium and they wouldn’t have to wait for the over-subscription,” said an analyst. “The market’s got a buzz around Salik, and there was already heavy retail investor engagement with the IPO.”

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The IPO will offer 1.5 billion shares at Dh2 apiece, which represents 20 per cent of the company’s equity capital. The Emirates Investment Authority and the Pensions and Social Security Fund of Local Military Personnel will both receive up to 5 per cent apiece, according to the announcement.

The first post-IPO dividend will be paid in April next.

Cornerstone investors

Ahead of the IPO opening, Salik also confirmed two cornerstone investors coming on board – UAE Strategic Investment Fund, Dubai Holding, Shamal Holding and The Abu Dhabi Pension Fund. Together, these investors have committed around Dh606 million (and this comes with a 180-day lock-up period), based on the announcement.

Salik operates 8 toll-gates in Dubai and had earlier given a roadmap on how it intends to widen its revenue base – through surge pricing, data monetisation, more toll gates if approval is given, and consultancy services.

In another move that went down well with prospective subscribers, Salik – which transitioned into a company on July 1 – said all of its future profits would be issued as dividends.

Different from DEWA, Tecom

The way Salik announced its final price is also quite a departure from how DEWA and Tecom went about their share offerings. Salik set a final price right at the outset instead of confirming one close to the ending of the subscription.

Right to upsize IPO

The company could raise the issue if demand warrants such a move. (DEWA had done so during its own subscription phase.)

According to one analyst, “There’s a high probability that Salik would raise the issue size, given the kind of demand that retail investors would have.”

Population gains, more toll gates

With Dubai’s urban infrastructure expanding at an optimum speed, more toll gates will form part of it. Salik estimates between Dh20 million to Dh30 million to launch new ones, depending on the number of lanes at a new location.

Top officials at the company have maintained that all decisions on new toll-gates in Dubai will have to be approved by The Executive Council. Salik operates the gates under a 49-year lease agreement with RTA.

Apart from new gates, surge pricing – whereby different toll tariffs come into play during heavy peak traffic – is another possibility in adding to the future revenue stream. Also up would be to offer Salik users targeted promotions and messaging from third-party entities, again depending on the time of day, the time of year, etc. This is where data monetisation will represent a sizeable cache for future revenues.

Salik shares have a relatively high dividend yield. Given that it has an asset-light business model, the dividend should remain stable for multiple years. Its decision to boost revenue through dynamic pricing methods could also bump up payouts to shareholders

- Vijay Valecha, Chief Investment Officer at Century Financial