Dubai Spurned for London as Companies Sidestep IPO Rules

Dubai and Abu Dhabi are finding that outperforming stocks markets aren’t enough to lure initial public offerings as restrictive regulations and a lack of trading volume persuade local companies to list in London.

Damac Real Estate Development Ltd. plans to raise $500 million when it sells depositary receipts in London this week in the first IPO by a Dubai-based developer since the sheikhdom’s property crash in 2008. That follows the London listing of Abu Dhabi-based health-care provider Al Noor Hospitals Group Plc in June and an IPO for the emirate’s NMC Health Plc last year.

Higher oil prices and government spending have led to a rally in Persian Gulf stocks and encouraged firms to sell shares. They’re opting to go abroad as rules such as the Dubai Financial Market’s requirement that at least 55 percent of a company must be offered have deterred IPOs in that emirate since

2009. Neighboring Abu Dhabi hasn’t had a new public offering in two years.

“IPO rules in the U.A.E. are restrictive so it makes sense that companies are going overseas to list,” Sanyalaksna Manibhandu, senior analyst at NBAD Securities LLC, ranked third among 48 brokerages by value traded on the DFM in October, said by telephone yesterday.

Damac was valued by analysts at $3.9 billion to $5.4 billion, three people briefed on the process said on Nov. 4. A spokesman for the company who asked not to be named declined to comment.

Market Gains

The developer today narrowed the IPO price range to $12.25 to $13.25 per global depositary receipt from $12.25 to $17.25, three people familiar with the matter said. The offering is oversubscribed at that range, the people said, declining to be identified because the matter is private.

All shares sales on the Dubai bourse must be priced at a par value of 1 dirham per share, limiting owners’ options in structuring the offers.

The DFM General Index has surged 77 percent this year, more than any benchmark measure in the 50 largest equity markets globally on a dollar basis, pushing valuations to near a five-year high, according to data compiled by Bloomberg. Shares in Dubai closed up 0.6 percent today.

While Nasdaq Dubai only requires companies to offer a minimum of 25 percent, its trading volumes are much smaller.

History Weighing

History is also weighing against Dubai after some high-profile failures, said Talal Touqan, Abu Dhabi-based head of research at Al Ramz Securities. Depa Ltd., which fits out building interiors, has slumped 63 percent since selling stock on Nasdaq Dubai in 2008 at $1.55 a share. Port operator DP World Ltd. consolidated its shares in 2011 after they tumbled.

“The motive for listing abroad is two-fold,” said Touqan. Companies “are seeking more active markets to promote issues and avoid failure stories like those at Dubai Nasdaq.”

Issues also get “higher valuations when listed abroad as multiples are higher and yields are lower, which makes cost of equity much lower,” he said.

While the Abu Dhabi Securities Market General Index has gained 45 percent this year, private-equity house Gulf Capital hired Rothschild to advise on a London IPO for its Gulf Marine unit, Chief Executive Officer Karim El Solh said in a phone interview Sept. 16. The Abraaj Group, a Dubai buyout firm managing $7.5 billion of assets, is also planning an IPO in the U.K. capital for its Stanford Marine Group, a person familiar with the plan said Sept. 15.

IPO Appetite

“Is there appetite for IPOs? Yes. Is there a venue for IPOs in the U.A.E.? No. The only venue is Nasdaq Dubai,” Seif Fikry, CEO for EFG-Hermes Holding SAE in the lower Gulf Cooperation Council, which excludes Saudi Arabia, said in an interview.

Dubai’s government is considering selling stakes in its companies to the public amid the economic recovery, Sheikh Ahmed bin Saeed Al Maktoum, head of the emirate’s Supreme Fiscal Committee, said in May. “Many companies” that fall under the umbrella of Investment Corp. of Dubai, the emirate’s main state-owned holding company, would be IPO candidates, he said.

“Altering the rules so the IPO process is more friendly to companies listing would certainly help appetite for these markets,” said NBAD’s Manibhandu. “The government needs to help build up the capital market by privatising. It can’t simply rely on the private sector to enhance capital markets.”

Some companies are opting for local markets. Just Falafel, the fast food chain that wants to expand its more than 40 restaurants, plans a 25 percent stake sale this year and may list on Nasdaq Dubai, two people with knowledge of the matter said in September. It would be the first in Dubai since Drake & Scull International raised 1.2 billion dirhams ($327 million) in March 2009.

More IPOs

Senaat, a government-owned holding company in Abu Dhabi, hired banks for an IPO, two people with knowledge of the appointments, who asked not to be identified because the details are private, said in September.

More IPOs may follow after index provider MSCI Inc. raised the U.A.E. and Qatar to emerging-market status in a move that takes effect in May. The upgrade will bring in an estimated $175 million from exchange-traded funds to Qatar and $170 million to the U.A.E., Bank of America Merrill Lynch said in a research note Sept. 23.

Emerging market status “will lower the cost of equity which will in turn encourage more local IPOs,” said Al Ramz’s Touqan. “Those factors that pushed companies to stay away will be no longer there.”

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