Dubai’s Damac Said to Cut IPO Value as Shares Priced Lowest

Damac Real Estate Development Ltd., a Dubai-based property developer, is cutting the size of its initial public offering and pricing the shares at the bottom of the range, two people with knowledge of the matter said.

The offering in London is expected to raise $400 million, down from an earlier target of $500 million, with the global depositary receipts priced at $12.25 apiece, the people said, asking not to be identified because the information isn’t public. The closing of the IPO has also been postponed until Dec. 2, according to the people.

Al Firdous Holding and Sahira Co., controlled by Damac Properties Development Co. founder Hussain Sajwani, are planning to sell as much as 18.8 percent of the new real estate company. The company had said the IPO would price yesterday.

The offering, the first for a Dubai-based developer since the sheikhdom’s real estate market crashed in 2008, is set to test the appetite of global investors for the city’s recovering property market. Damac was valued by analysts at $3.9 billion to $5.4 billion, three people briefed on the process said on Nov. 4. The company said on Nov. 14 the valuation range would be between $12.25 and $17.25 per GDR, valuing it at between $2.7 billion and $3.7 billion.

“It was expensive to us even at the lower end of the range,” Ali Taqi, a portfolio manager at A/T Capital Management in Dubai who manages $170 million, said yesterday in a phone interview. “We couldn’t justify the valuation.”

“Hollywood-Themed”

Damac has started projects including Hollywood-themed apartment towers and a Trump International golf course in 2013. Damac has assets valued at $2.3 billion and reported first-half profit of $332 million, up from $212.1 million for the whole of 2012, according to a filing on Nov. 4. Gross profit margins averaged 44 percent in the three years through 2012 and 64 percent in the first half of this year, according to the filing.

Citigroup Inc. and Deutsche Bank AG, along with Samba Capital and Investment Management Co. and VTB Capital Plc, are managing the IPO.

The IPO was extended because of this evening’s announcement of the winner of the Expo 2020, according to one of the people, who said the shares would have slumped if Dubai’s bid for the world fair is unsuccessful.

‘Tough Sell’

“Dubai’s real estate remains a tough sell” internationally, said Taher Safieddine, an analyst at Shuaa Capital PSC. “Concerns about the property market overheating and Damac’s business model, which is based on property sales with no recurring income, makes it highly cyclical.”

Damac’s price-to-book value is more expensive than that of Dubai’s biggest developer, Emaar Properties PJSC (EMAAR), even though Emaar is deemed less risky because it derives 44 percent of its revenue from hotels and malls, according to Safieddine.

Damac isn’t alone in seeking a London listing. Abu Dhabi-based health-care provider Al Noor Hospitals Group Plc and the emirate’s NMC Health Plc opted for IPOs in London. Even as Dubai and Abu Dhabi’s markets outperformed this year, they are finding that isn’t enough to lure IPOs as restrictive regulations and a lack of trading volume persuade local companies to list in London instead of local markets.

To contact the reporters on this story: Stefania Bianchi in Dubai at sbianchi10@bloomberg.net; Ruth David in London at rdavid9@bloomberg.net; Zainab Fattah in Dubai at zfattah@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net

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