UAE government’s IPO juggernaut raises $13.3bn and counting

Reuters

• Gulf markets thrive while Europe and US fear recession
• International investors attracted to UAE’s privatisation drive
• Recent UAE IPOs form small percentages of companies sold
• Dubai Duty Free and Jumeirah Group could be next to go public

A flurry of government-backed initial public offerings (IPOs) on the Dubai and Abu Dhabi stock markets has helped rejuvenate UAE bourses, as local and international investors seek exposure to the country’s buoyant economy. 

While Europe and the US fret over soaring inflation and likely recession, and most emerging market currencies wilt versus the dollar, Gulf public and private sectors are thriving, thanks in part to high oil prices and the region’s dollar pegs. 

These dynamics have swelled interest in the UAE’s privatisation drive, which began with serendipitous timing in late 2021.

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Since then, IPOs of five Abu Dhabi government-controlled companies – ADNOC Drilling Co, urea and ammonia maker Fertiglobe, Al Yah Satellite Communication Co (Yahsat), Abu Dhabi Ports and petrochemicals manufacturer Borouge – raised a combined $5.73 billion. 

In Dubai, government-run Dubai Electricity and Water Authority’s (DEWA), freezone owner TECOM Group, and road toll operator Salik sold a combined $7.58bn of shares in IPOs this year. At the time, DEWA’s was the largest in Europe, Middle East and Africa since 2019.

“The IPOs have made headlines not just locally or regionally but internationally, too – they’ve brought UAE markets to the front and centre of the emerging market coverage,” said Tarek Fadlallah, CEO of Nomura Asset Management Middle East in Dubai. 

“Bankers are getting calls from international investors that they wouldn’t have done one to two years ago, precisely because of this heightened awareness.”

The IPOs have helped put Abu Dhabi Securities Exchange’s stock index among the top performers globally in 2022, climbing 15.5 percent this year to October 11, although it has retreated from mid-August’s all-time high. 

Dubai’s gains have been more modest, rising 3.9 percent year-to-date as of October 11, although that still compares favourably with the likes of the Nasdaq (down 33.4 percent), Hong Kong’s Hang Seng (down 27.7 percent) and the MSCI Emerging Markets Index (down 28.2 percent). 

Gulf bourses’ performance is even better when compared in dollar terms with other emerging markets. 

“It’s not just an increase in the number of stocks, it’s also the quality of the companies that have listed,” said Akber Khan, senior director of asset management at Al Rayan Investment in Doha.

“There are now interesting options across cyclical, growth and defensive companies – from utilities and infrastructure to consumer and healthcare, etcetera. The IPOs give access [to] parts of the UAE economy investors weren’t previously able to access from the public equity markets.”

Individual investors were long the mainstay of Gulf stock exchanges as wealthy nationals would meet on bourse trading floors to buy and sell and socialise, but the market crashes of the mid-to-late noughties led many to quit. 

In 2013, individuals accounted for 76 percent of trading on Dubai Financial Market, but that had fallen to 46 percent in the first half of 2022, with institutions now the dominant force. 

The IPOs have also succeeded in winning back many retail investors who were burnt in other flotations over the past decade. This is especially the case in Dubai, which tended to involve companies in highly cyclical industries such as retail group Marka and Dubai Parks and Resorts (now DXB Entertainments). 

Marka was declared bankrupt in 2021, seven years after listing on Dubai’s bourse, while DXB Entertainment’s shares are down about 95 percent from their 2016 peak. 

“If we go back a year or two, it was the same old stocks and not a lot happening,” said Fadlallah. “There wasn’t really a lot of discussion about the market, its prospects or even the market as a vehicle for savings and investments. That dialogue has materially changed over the past eight or nine months.”

Retail investor behaviour in participating in recent IPOs is also different to previous eras when day trading was more popular. This time, individual subscribers tend to want to buy and hold stocks for their dividends rather than make a quick profit.

“There’s great confidence in the durability of some of these IPOs,” said Fadlallah. 

A common theme to all the recent UAE IPOs is the small percentage of the company sold to the public. Aside from Yahsat, none of the other newly listed firms floated more than 25 percent of their shares. 

“Sovereigns aren’t doing these because they’re in need of cash – the aim isn’t to maximise the money raised, it’s to maximise the number of companies on the stock market,” said Khan.

The small stake sizes also enable the seller to test the market. 

“While there’s a lot of liquidity, it’s not infinite, so you wouldn’t want to over-issue early on in case in six months’ time when you want to do the next IPO the market is poor, or the investor appetite isn’t there,” said Fadlallah. “It’s a very well managed process.”

Companies’ performance since listing has been mostly positive. As of October 11, TECOM is down 14.6 percent on its IPO price, while SALIK is up 13 percent, and DEWA has gained 2.4 percent. 

In the UAE capital, Abu Dhabi Ports has surged 75.6 percent from its IPO valuation and Fertiglobe has more than doubled. ADNOC Drilling and Borouge are up 51.3 percent and 13.5 percent, respectively, but Yahsat has lost four percent. 

The effect of the IPOs on overall bourse activity seems considerable. Dubai Financial Market’s (DFM) turnover this year to October 3 was AED69.80bn, up 80 percent year-on-year, while Abu Dhabi rose 30 percent to AED325.7bn over the same period. 

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“The Gulf is looked at by many international investors as a proxy for oil. With Brent at $90, international investors want to access that growth and don’t just want to keep buying the usual banks, real estate developers and the odd telecom company,” said Khan.

“Investors don’t have to worry about currency depreciation and massive government surpluses are still expanding. As long as Brent remains $80 or more, that enables very generous government spending, which will fuel further growth. So, raising equity capital via an IPO makes a lot of sense.”

In announcing Dubai’s IPO programme last November, deputy ruler Sheikh Maktoum Mohammed bin Rashid Al Maktoum said 10 state-linked firms would list on the DFM. 

These flotations would be part of efforts to lift the bourse’s market capitalisation to AED3 trillion ($817bn), he said.

As of June 30, the DFM’s total market capitalisation from its 70 listed companies was 527bn dirhams. The ADX combined market value was 2.25trn dirhams as of October 4.

“What’s impressive and must be commended are the reforms over the last couple of years, led by Abu Dhabi, which have helped transform UAE stock markets, making them more dynamic and active,” said Khan. “From being relatively sleepy for many years to suddenly having this exciting and very full pipeline, where investors are struggling to keep up with all these new companies.”

A January 1 report by Dubai government-run bank Emirates NBD said other companies that would go public include Dubai Duty Free, hospitality conglomerate Jumeirah Group and district cooling provider Empower. 

“There is a healthy list of private and government-owned companies in the UAE already preparing to IPO and many other worthy candidates on the side lines,” added Khan. “Some companies that delisted could even re-join the market.”

UAE government IPOs over the past year

Emirate	Company	% sold in IPO	Amount raised ($m)	Listing date	IPO price (AED)	Oct 11 price (AED)	% change
Abu Dhabi	ADNOC Drilling Co	11	1,100	Oct 21	2.30	3.48	51.3
Abu Dhabi	Fertiglobe	13.8	795	Oct 21	2.55	5.41	112.2
Abu Dhabi	Yahsat	40	731	Jul 21	2.75	2.64	-4
Abu Dhabi	Abu Dhabi Ports	24.6	1,100	Feb 22	3.20	5.62	75.6
Abu Dhabi	Borouge	10	2,000	Jun 22	2.45	2.78	13.5
Dubai	DEWA	18	6,100	Apr 22	2.48	2.54	2.4
Dubai	TECOM	12.5	463	Jul 22	2.67	2.28	-14.6
Dubai	SALIK	24.9	1,018	Sep 22	2	2.26	13