Saudi Crackdown Sent Shivers Through Largest Middle East IPO

Updated on
  • Local investors said to back away from sale of Emaar unit
  • Abu Dhabi royal-linked funds said to buy shares in the sale
Jaguar Growth Partners’ Gary Garrabant discusses the Saudi Arabian economy and the corruption in the Kingdom.

A Dubai property developer managed to pull off the Middle East’s largest initial share offering this year, but only after it was almost derailed by the sweeping arrests in neighboring Saudi Arabia, where authorities say they’re rooting out corruption.

Advisers to Emaar Properties PJSC scrambled to complete a $1.3 billion share offering in its United Arab Emirates development business after local investors reneged on hundreds of millions of dollars in demand on the last day of the sale, according to people familiar with the matter. The retreat was triggered by Saudi Arabia’s unexpected crackdown, they said.

In the end, Emaar Development PJSC was able to pull off the listing within the original price range, with backing from some prominent regional investors as well as global funds, which accounted for about 40 percent of the sale. The top 10 buyers made up about 50 percent of the deal and included the family office of a wealthy Saudi, and funds linked to the Abu Dhabi royal family also invested, the people said. The government of Dubai is the largest shareholder in parent Emaar Properties, while Abu Dhabi has close ties with the Saudi regime.

"We are pleased to have received significant retail and institutional support for our IPO, the first in Dubai in three years," a spokesperson for Emaar Development said in an emailed response to questions. "Subscriptions to our IPO indicate that investors are excited about the prospects of Emaar Development, particularly our increased sales and performance, and our expected dividend yield of 8.6 percent for the next three years, which is higher than our competitors, and likely to increase in the future."

Billionaires Detained

The unprecedented Saudi crackdown this month has seen prominent royal family members and billionaire investors detained. The shock-waves wiped almost $19 billion of value from exchanges across the six-member Gulf Cooperation Council countries last week.

There was plenty of demand for Emaar shares at the start of the IPO, which opened on Oct. 26, more than a week before the surprise Saudi move. The struggle to complete the sale shows how regional investors are getting increasingly worried about deploying capital in the region amid the crackdown. It could also impact other large IPOs in the U.A.E., including the sale of shares in Abu Dhabi National Oil Co.’s retail fuel stations planned for later this year and the potential IPO of Emirates Global Aluminium in early 2018.

“Under the current circumstances, it was good to see they could still move on with the IPO. The timing it is not great for IPOs to fly,” said Talal Touqan, head of research at Al Ramz Capital. “Being priced at the lower range was somehow expected by the market. It could have been priced at a higher level in the past, but you had a geopolitical scenario shifting in the middle of the operation.”

Shares of parent Emaar Properties have fallen 6.8 percent since the IPO began. They’d previously enjoyed a surge after the plan to list the unit was announced in June. The shares dropped 1.2 percent on Sunday to close at 7.77 dirhams.

Saudi Investors

Saudi Arabian investors that had expressed interest in large orders for Emaar Development at the start of the IPO process backed out after the crackdown, the people said. That affected appetite in the U.A.E. as well, and investment banks managing the sale spent the last day calling around investors to assuage their fears and try and win back demand, they said.

Some local investors did subsequently return to the sale, while global funds bought a large portion, betting on guaranteed returns from the annual dividend on offer, the people said.

Bank of America Corp and Goldman Sachs Group Inc were the global banks that managed the offering, along with Emirates NBD PJSC, First Abu Dhabi Bank PJSC and EFG Hermes Holding SAE. Rothschild was financial adviser.

— With assistance by Filipe Pacheco

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