Banking & Finance

Empower targets Gulf expansion with IPO cash boost

October 24, 2022, 11:24 AM

Empower aims to expand in Saudi Arabia, Qatar, Oman and Bahrain
Fourth state-linked entity to float this year in Dubai
DEWA, TECOM and Salik sold $7.58bn of shares in IPOs

Dubai’s Emirates Central Cooling Systems Corporation (Empower) plans to launch its initial public offering (IPO) on the Dubai Financial Market on November 16, as it eyes expansion to neighbouring Gulf states, company executives said on Monday.

Subscriptions will open on October 31 and close on November 7.

Final pricing will be set on November 9 and is expected to range between AED2.10 ($0.57) and AED2.30, according to analysts.

Empower said it is also looking at growth in other Gulf and Middle East markets.

“We will look to expand within the UAE [and] in the GCC, we have an aim to [expand] to Saudi Arabia, Qatar, Oman, Bahrain and Egypt,” Ahmad Bin Shafar, CEO of Empower, said at a press conference in Dubai.

“Dubai’s market is a very promising market,” he added, crediting the market’s solid macroeconomic fundamentals for district cooling to a resilient and healthy economy undergoing one of the fastest growth rates in the region.

He cited a healthy demographic profile composed of a growing population and continuous expat inflows, strong growth in the residential and real estate supply, with high density residential units favouring district cooling adoption, and a growing hospitality industry that is fast-recovering from the COVID-19 induced slowdown.

Empower is targeting to hold an 80 percent market share of the total connected capacity in Dubai by the end of 2022.

The company plans to pay a minimum of AED850 million ($231.4 million) in dividends in each of the first two fiscal years after the IPO, it said in a statement.

Empower is the fourth state-linked entity to float this year in Dubai after Sheikh Maktoum bin Mohammed bin Rashid Al Maktoum, deputy ruler of Dubai, and deputy prime minister and minister of finance of the UAE, announced a programme to list 10 government and state-owned companies on the Dubai Financial Market.

Dubai seeks to increase total volume of its domestic stock markets to AED3 trillion.

“The fact that Dubai has decided to proceed with the IPO amid a global carnage in stocks is commendable,” said Vijay Valecha, chief investment officer at Dubai-based Century Financial.

“From the looks of it, this IPO is likely to be oversubscribed. The fourth IPO in DFM, above all, proves that there is strong demand for high-quality paper from the emirates.

“With Dubai emerging as a key global hub in trade and finance, entities that are closely associated with its core infrastructure are considered too valuable to be ignored.

“DEWA, TECOM, Salik or Empower are companies that are essentially a bet on Dubai or even on the rising shift of global power from West to East.”

Government-run Dubai Electricity and Water Authority’s (DEWA), freezone owner TECOM Group, and road toll operator Salik sold a combined $7.58 billion of shares in IPOs this year.

At the time, DEWA’s was the largest in Europe, Middle East and Africa since 2019.

As Europe and the US fret over soaring inflation and a 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.

“It is worth noting that in the current economic turmoil, Asia has been stable. Dubai straddles East and West, and this geographical advantage, along with its sound economic policies, has attracted UHNWIs [ultra-high-net-worth-individuals] in Asia, especially those from China and India, to relocate to Dubai,” Valecha said.

“Institutional investors are aware of these trends, and it is not surprising that Dubai IPOs tend to get oversubscribed.

“To make the shares more attractive from a valuation perspective, the [Empower] shares are likely to be priced between AED2.10 and AED2.30.”

According to EY, the Middle East and North Africa witnessed a 500 percent year-on-year increase in the number of companies listing during the first six months of 2022, with 24 IPOs raising $13.5 billion.

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.”