Dubai: If you were still on the fence on whether or not you should invest in the initial public offering put forward by Dubai’s state water and power company DEWA, we look at seven different reasons why you should.
1. Size of the offering
Although the likely size of the IPO will be clear after March 24, which is when the time to subscribe for shares open, multiple Dubai-based market analysts are evaluating how the 6.5 per cent stock floatation implies an IPO size of about Dh10 billion and a total market valuation of well over Dh100 billion.
'Subscription' or a share that is 'subscribed' are terms used to describe newly issued shares that an investor agrees to purchase before the official listing date. Subscriptions are common during IPOs and subsequent offerings. Institutional or accredited investors are most often those eligible to subscribe to a new issue.
This sheer magnitude of the utility giant’s offering is a key reason why investor participation could set a new record for an IPO in Dubai, analysts further opine. The deal is the first new listing in Dubai since 2020 and is expected to be the UAE's biggest IPO on the Dubai Financial Market (DFM) since 2017.
2. Dividend pay-out
A stock bought during an IPO has the potential to deliver huge capital gains decades down the line, historical data shows. Even just the annual dividend income of a highly successful company can exceed the original investment amount, given a few decades' time – which bring us to the first reason.
When it comes to dividend policies, DEWA intends to pay dividends twice each fiscal year – in April and October of each year – after the offering. (A dividend is a distribution of profits to its shareholders. When a corporation earns a profit or surplus, it is able to pay a proportion of the profit as a dividend to shareholders. Any amount not distributed is taken to be re-invested in the business.)
It expects to pay a minimum dividend amount of Dh6.2 billion per annum, over the next five years, from October 2022 to April 2027, with some experts analysing how the utility will possibly consider tripling its annual dividend target after listing.
3. Ripe IPO market
Analysts agree that the timing couldn’t be better, with the overwhelming demand for the latest IPOs in the region proving as much. Given that government entities that listed recently witnessed massive interest from investors, the same should be the case with Dubai government entities.
ADNOC Drilling, the largest national drilling company in the Middle East by rig fleet size, had its listing over-subscribed late last. The unit of Abu Dhabi oil giant ADNOC had its $1.1 billion (Dh4 billion) initial public offering (IPO) surpassed by investors placing more than $38 billion of orders (Dh140 billion).
Fertiglobe, the Abu Dhabi-based chemicals joint venture of energy major ADNOC and Netherlands-listed OCI, raised $795 million (Dh2.92 billion) in what was the third-largest listing to date on Abu Dhabi Securities Exchange (ADX).
Simply put, to measure a company’s market value or ‘worth’ a bank takes into consideration possessions the firm owns, debt it owes to lenders, number of employees, sales, profits and how many shares it has in total.
A number of experts had one common thing to say when investing in an IPO and they cannot stress it enough, always look back at how the stock price of recent IPOs ended up performing in the market. So always look back at how the stock price of recent IPOs ended up performing in the market.
4. International interest
Current trading volume shows that foreign investors are expressing significant interest in the Dubai Financial Market (DFM), implying that the latest initiatives are game-changers from an overseas market perspective.
Given that global financial markets are trading near all-time highs, prominent fund managers are looking for high-quality assets to diversify their portfolios and analysts opine how Dubai government assets perfectly fit the need.
So far on the DFM, real estate, telecom major du, and - to an extent - banks have been the most actively traded stocks, data shows. But in recent years, trading volumes have been on the lower side, compared to where the market was between 2005 and 2008.
Analysts evaluate how the DEWA listing will trigger a shift in this trading pattern, and with foreign investor interest, it can create substantially more trading volumes.
5. Strong balance sheet
DEWA and its subsidiaries, which serves the UAE’s 3.4 million people with over 1 million customers in Dubai, has assets worth up to Dh190 billion and recorded Dh23.8 billion revenues in 2021, growing annually by 2 per cent during between 2019 to 2021.
The utility giant, which reported Dh12.1 billion in core earnings during 2021, is widely considered to have a strong balance sheet with low net debt of just Dh17.6 billion last year.
6. Future in clean energy
With the power utility recently reiterating its targets like Dubai Net Zero Carbon Emissions Strategy 2050 and the Dubai Clean Energy Strategy 2050, DEWA aims to provide 100 per cent of Dubai’s energy production capacity from clean energy sources by 2050.
“DEWA has a continuous record of good governance across all its operations,” said Saeed Mohammed Al Tayer, managing director and CEO of DEWA, at a Dubai press conference on Tuesday.
“It is ready to meet the increasing demand for electricity and water in the emirate, as the population is expected to grow from around 3.5 million people today to 5.8 million people by 2040.”
7. No need for debt
DEWA has multiple projects on hand, including a mega solar powered plant. A major transition to renewable energy projects is taking place, and matter experts that these will require heavy capital spend. According to DEWA projections, this year will see Dh8 billion to Dh9 billion in expenses.
On the debt side, the CEO hinted earlier that the firm wants to keep the load light for the company, saying that DEWA will not need to raise debt in the next five years.
Analysts agree that the company’s finances are strong, having had a robust financial track record and is expected to improve further with a focus on sustainability – and that’s exactly what all the potential subscribers to the IPO are banking on.
Subscribers or potential investors must ensure to have an updated NIN and complete all relevant fields in the subscription application along with all the required documents and submit it to the bank, together with the subscription amount expected to be made during the offer period.
Bottom line: Keep in mind these 6 factors when buying shares in any IPO
1. If you were wondering how you can increase your chances of an allotment in an IPO, here’s what you should know. All IPOs are most often available only for the first few days of the bidding process.
(What does it mean to 'allot' shares? When an IPO gets announced, investors from different categories start applying for shares. Once the applied share gets credited to their trading account, it is referred to as allotting shares or 'IPO allotment'.)
2. If you are planning to bid, bid within the first few days, if possible one day of its availability. Bidding early as possible increases your chances of allotment.
3. Most often there will be more demand than supply for a new IPO. For this reason, there is no guarantee that all investors interested in an IPO will be able to purchase shares.
4. Those interested in participating in an IPO may be able to do so through their brokerage firm, although access to an IPO can sometimes be limited to a firm’s larger clients.
5. Generally speaking, IPOs are popular among investors because they tend to produce volatile price movements on the day of the IPO and shortly thereafter. This can often produce large gains.
6. Ultimately, investors should judge each IPO according to the prospectus of the company going public, as well as their financial circumstances and risk tolerance.