Dubai: In what is likely to be Dubai’s largest-ever initial public offering (IPO) to date, the state power utility, Dubai Electricity and Water Authority (Dewa) began its share subscription on Thursday, amid upbeat prospects and heavy demand among investors.
The likely size of the IPO was made clear when the time to subscribe for shares opened. Multiple Dubai-based market analysts are evaluating how the 6.5 per cent stock flotation, priced between Dh2.25 to Dh2.48, implied an IPO size of between Dh7.31 billion and Dh8.06 billion and a total market capitalisation in the range of Dh112.5 billion to Dh124 billion.
The analysts cheered the pricing, saying that this will encourage all categories of investors. They also added that this improves the chances of the offer being heavily subscribed, with the share allotment expected to end within a few days because of the surge in demand. The strong set of results that was published by Dewa also expectedly sets up the utility giant for successful IPO, the analysts further noted.
Keeping the offer price at under Dh3 a share, DEWA – and its shareholder, the Dubai Government – is casting the net as wide as possible to bring investors on board and add depth to the capital market by bringing in a new generation of investors - UAE nationals and residents alike.
2. The first portion of shares are made available to ‘retail’ investors, who are non-professional individual investors who invest money themselves or through brokerage firms. These investors are those with a UAE-based bank account and a DFM Investor Number (known as ‘NIN’).
3. The second portion of shares in Dewa is for institutional investors (legal entities like banks, funds, insurers or any large institution), while the third portion of the preliminary share offering is for eligible employees of Dewa.
4. While 260 million shares are offered to individual investors, 65 million shares are offered to eligible employees of Dewa. Meanwhile, 2.925 billion shares are offered to professional or institutional investors. Each share subscriber will have a minimum guaranteed allocation of 1,000 shares.
5. While the minimum subscription size for individual investors and Dewa employees has been set at Dh5,000, any additional investments can be made in lots of at least Dh1,000. When it comes to institutional investors, the base subscription has been set at Dh1 million. There is no maximum limit.
6. The share offering’s subscription period is expected to run from March 24 to April 2, meaning starting March 24 potential investors can subscribe to or buy shares. But before that, those looking to book shares can send in their subscription forms via their respective banks and express their interest in buying shares.
7. Beyond April 2, individual investors cannot subscribe to or buy any more shares before trading commences on April 12. Similarly, after April 15, professional investors or institutions cannot subscribe to or buy any more shares, a day after which their investments will be allocated.
8. Individual investors will be officially allotted shares on April 11, and this is also when any excess subscription monies, if any, will be refunded back. The price range (Dh2.25 to Dh2.48) at which you, as a potential investor, can subscribe to Dewa IPO shares was published on March 24.
9. The final offer price will be announced on April 6. The opening of subscriptions today, according to analysts, will generate the biggest response yet for an IPO in Dubai.
Still on the fence?
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 different reasons why you should.
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.
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.
‘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.
Timing couldn't be better
Analysts agree that the time is right, 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 oversubscribed 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).
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.
Why Dubai's Dewa listing is set to be a success
Dewa and its subsidiaries, which serves 3.5 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.
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 last week. “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.”
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.
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.
7. Taking a look at valuation might seem tricky for investors but is an important aspect that shouldn’t be overlooked. To begin with, see what the company is worth in the market (valuation) as compared to its peers or existing companies in the same industry.
8. 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.
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