Axiom Pulls U.A.E.'s First IPO in Two Years on Market Concerns

Axiom Ltd., a mobile-phone retailer based in Dubai, canceled plans to raise at least $100 million in an initial public offering, dealing a blow to expectations of a market recovery as the emirate grapples with a debt crisis.

The company abandoned the IPO because of “widespread concerns about market conditions and liquidity,” Axiom said in a statement yesterday. It had orders for all the shares, which were slated to begin trading on Nasdaq Dubai on Dec. 9, the company said. An Axiom spokesman declined to comment further.

Dubai’s economy is struggling to recover from a 2009 slump and the weight of about $112 billion of debt amid fears that some government-owned entities won’t be able to refinance loans. The Bloomberg GCC 200 Index has gained 11 percent this year, trailing the MSCI Emerging Markets Index’s 14 percent increase.

“I didn’t see Axiom as expensive at all,” Fadi Al Said, head of equities at ING Investment Management (Dubai) Ltd., said by phone today. “People were a little skeptical about Nasdaq Dubai as the experience with listings there has not been good.”

Axiom cut the maximum price at which it would sell the shares to $1 each on Dec. 2, according to a term sheet for the sale obtained by Bloomberg News. The company had been offering the shares for 80 cents to $1.15 previously, a range that would have valued Axiom at $760 million to $1.1 billion. The share offering was open to institutional investors only.

DP World Ltd., the world’s fourth-biggest port operator, interiors contractor Depa Ltd. and jewelry retailer Damas Ltd. have all performed poorly after their Nasdaq Dubai listings.

Growth Plans

Axiom had planned to use some of the money to finance growth and at least $100 million to pay debt, Chief Executive Officer Faisal Al Bannai said on Nov. 21. Deutsche Bank AG, Citigroup Inc. and Dubai-based investment bank Shuaa Capital PSC were arranging Axiom’s share sale.

“Even at the low end, Axiom was pricey, with very low net profit margin,” Shehzad Janab, asset management head at Dubai- based Daman Investments PSC, said in an e-mail today. “That the deal has been pulled is not good for the U.A.E. market.”

An offer price of 80 cents values Axiom’s shares at about 8.5 times to 9.5 times its estimated 2011 earnings, Al Said at ING said. The company “has about 60 percent market share with no reliance on one brand” and its earnings could have grown at a rate in the “high teens” over the next three years, he said.

Market Valuations

Jarir Marketing Co., a Saudi Arabia-based retailer and wholesaler of office supplies and engineering products, trades at an estimated price-earnings multiple of 14.9, according to data compiled by Bloomberg. The 200 companies listed on the Gulf’s benchmark share index are trading at 16.6 times historical earnings compared with 15.2 times for Dubai’s index and 14.5 times for the MSCI EM Index, the data shows.

Companies in the Persian Gulf aren’t benefiting from record demand for share sales in emerging markets as concerns over debt and sluggish economic growth dampens investor confidence.

Omani mobile-phone operator Nawras and Aluminium Bahrain BSC, the operator of an 850,000-metric-ton-a-year smelter, sold shares last month at the bottom of the range used to canvas investor interest in the stocks. The six-member Gulf Cooperation Council region generated $1.41 billion of initial public offerings this year, compared with $2.27 billion in the same period a year earlier, data compiled by Bloomberg show.

The average daily volume of shares traded in Dubai has slumped to 159 million this year from 448 million in the year- earlier period, according to data compiled by Bloomberg.

Secondary Market

“Conventional bank financing, bonds and sukuk are likely to be the preferred mode of raising funds for regional corporations until the profitability of issuers and investor sentiment improves,” Phil Gandier, Ernst & Young, Middle East’s managing partner, said in an e-mail today. “The IPO markets normally recover after the secondary markets and we have been seeing a gradual recovery in the stock markets around the region.”

To contact the reporters on this story: Zahra Hankir in Dubai at zhankir@bloomberg.net Arif Sharif in Dubai at asharif2@bloomberg.net

To contact the editor responsible for this story: Daniel Hauck at dhauck1@bloomberg.net.

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