Dubai: The Airline? Airport? Aluminum company? Or another real estate developer?
Right from Monday evening, there was intense speculation about which Dubai Government owned enterprise would be the first to head for a stock market listing. That interest showed all through the intense trading on Tuesday (November 2), when the Dubai Financial Market (DFM) shot up nearly 4 per cent as trading values rocketed past Dh1.3 billion - easily the best single-day activity in five years, according to analysts.
And then came the announcement: Dubai has chosen the utility provider Dubai Electricity and Water Authority (DEWA) for the first of its planned IPOs of 10 government entities. In every aspect, the selection of DEWA to make the transition into a public limited company is indeed befitting.
DEWA fulfils the electricity and water needs of the emirate’s residents and businesses on a 24x7 basis, and it also charts out Dubai’s transition to a future anchored by renewable energy. As Sheikh Maktoum bin Mohammed bin Rashid Al Maktoum, Deputy Ruler of Dubai and Deputy Prime Minister and Minister of Finance, said: “Investing in DEWA is an investment in Dubai's future. DEWA is a key pillar of the development in Dubai.”
By touching the lives of the more than 3 million people in the emirate and visitors to the city, and all of its businesses, DEWA is very much at the forefront of all activities.
DEWA backs Dubai’s push towards sustainability
Based on those yardsticks, DEWA was the obvious choice for the IPO push, market sources say. “Even as DEWA offers its services as a ‘traditional’ power and water company, it has been one of the biggest investors in Dubai’s push towards sustainability,” said an analyst. “The upcoming IPO’s size will be significant and DEWA will not even break into a sweat in ensuring investor interest.
“Whether its solar power related investments or public-private partnerships, DEWA has been quite the innovator.”
The analyst was referring to the multi-phase, hugely ambitious Mohammed Bin Rashid Al Maktoum Solar Park, and tipped to be the biggest ‘single-site solar park based on an IPP (independent power producer) model”. Already well into its development, the solar park has a panned production capacity of 5,000 MW and investments totalling up to a staggering Dh50 billion.
On both counts, the scale of Dubai’s ambitions for a future built around renewable energy is clear. And it will be DEWA that will deliver that future.
Retail and institutional investors
In Tuesday’s announcement, Sheikh Maktoum did not mention a particular date for the IPO to come to the market. Analysts are putting their money on an early 2022 announcement, and with the stock being offered to both retail and institutional investors.
“Investments in renewables like solar power requires high upfront capital expenditure,” said Sameer Lakhani, Managing Director at Global Capital Partners, a consultancy. “But the payback for DEWA - and its future shareholders - is quicker and with lower costs.
“With more of the city’s power needs going towards solar, the RoE (Return on Equity) should be higher for investors.”
As per 2020 estimates, DEWA had an installed capacity of 11,700 MW for electricity and 470 MIG (million imperial gallons) of water per day. It was also the year that Dubai’s peak daily electricity use recorded a 6.6 per cent spike in the January to August phase, as the emirate took on the challenge of countering COVID-19. The DEWA usage increase was the highest since 2012.
“DEWA has reduced losses in electricity transmission and distribution networks to 3.2 per cent, compared to 6-7 per cent recorded in Europe and the US,” said Saeed Al Tayer, Managing Director and CEO, at the time.
How much of DEWA will be offered?
Again, it will be a while longer to get a handle on the percentage that will be offered to the public in the upcoming DEWA IPO. Analysts suggest that anything between 10-20 per cent could be offered, going by what other recent high-profile stock market listings of utility and energy associated companies achieved.
Vijay Valecha, Chief Investment Officer at Century Financial, pointed to the overwhelming response recent IPOs in Abu Dhabi have had. Case in point being those of ADNOC Drilling - oversubscribed to the tune of $34 billion - Fertiglobe, which raised $795 million in what was the third-largest listing to date on Abu Dhabi Securities Exchange. (The ADX had soared past the Dh1 trillion market cap this year and is firmly entrenched at those levels.) “Premium government entities which did their primary listing in Abu Dhabi witnessed massive interest from institutional and foreign investors,” said Valecha. “The same should be the case with Dubai Government entities.
“Firms like DEWA and Dubai Airports are marquee assets, and there is no reason to believe that overseas investors will not be interested in them. Tuesday’s (November 2) rally in DFM on high trading volume shows that investors also believe that the latest initiatives are game-changers from a market perspective.
“Moreover, global financial markets are trading near all-time highs, and prominent fund managers are looking for high-quality assets to diversify their portfolios. Dubai Government assets perfectly fit the bill. It is likely that 15-20 percent of their shares will be floated in the market.”
UAE Nationals to benefit
DEWA will certainly set aside a sizeable percentage for UAE Nationals, and they will have ample time to put together the funds to place their interest. Expect more action to take place on DFM in the coming weeks, as investors home in on the unprecedented push by Dubai to widen its stock market base, including Nasdaq Dubai.
Dh3 trillion mark
Dubai wants its stock markets to touch the Dh3 trillion mark in market cap. Getting 10 of its biggest enterprises to list will immediately bring on that required depth - and in turn become a liquidity magnet.
Tapping foreign fund flows is high on the agenda, and was the reason for Dubai-headquartered telecom service provider du raising its foreign ownership limit to 49 per cent recently from 20 per cent earlier. (In Abu Dhabi, Etisalat too made a similar switch.) “So far on DFM, real estate, du, and - to an extent - banks have been the most actively traded stocks,” said an analyst. “But in recent years, trading volumes have been on the lower side, compared to where the market was between 2005-2008.
“DEWA will bring about that change, and with a bit of foreign investor interest, it can create substantial volumes. Add another nine Dubai bluechips, then the Dh3 trillion market cap looks well within reach.”
In many ways, investing in the DEWA stock is about setting a marker for the future.
DEWA has Dh200 billion in assets to gain investor interest
The updates on DEWA’s financial and operational status comes after the company was confirmed as the first of 10 IPOs Dubai is planning for leading government-owned enterprises. These numbers should be enough to enthuse investors eyeing the possibility of taking part in the upcoming IPO.
The projects will be commissioned in the next five years, “to meet the increasing demand for electricity and water in the emirate,” said Saeed Mohammed Al Tayer, Managing Director and CEO of Dubai Electricity and Water Authority.
“This is achieved through a clear strategy and a roadmap to transform Dubai into a center of excellence for new technologies necessary to achieve net zero emissions and reach 100 per cent clean energy by 2050.
“DEWA has succeeded in gaining the confidence of major investors to work in its major projects, especially in renewable and clean energy using the Independent Power Producer (IPP) model. Through this model, DEWA has attracted about Dh40 billion.
“With its portfolio of diversified projects, DEWA is transforming Dubai into a global hub for clean energy, using different disruptive technologies, with a focus on diversifying the energy mix, as we strive to improve the quality of life for all the people living in the UAE.”
Growing customer base
As of now, DEWA’s customer accounts total more than 1 million, with the average annual increase at 7 per cent. Last year was a monumental one for the utility entity, as it stood up to the challenge of handling the sudden and sustained spike in power usage during the peak COVID-19 months. During the phase, average usage shot up 6.6 per cent - the biggest such gain since 2012, according to DEWA records.
“Listing DEWA in the Dubai Financial Market confirms the confidence of global investors in Dubai Government and its organisations, as well as the strong position DEWA enjoys,” said Al Tayer. “The move will help DEWA expand its scope of work and will contribute to providing new jobs for Emiratis, support the business sector and strengthen strategic partnerships between the public and private sectors.”