It looks as though those who predicted a regional flood of IPOs were not exaggerating after all.
Depa and Future Pipe are well advanced in the process of listing their shares on the Dubai International Financial Exchange (DIFX) and yesterday we had news that shariah-compliant bank Al Inma would float on the Saudi exchange in an issue worth $2.8 billion (Dh10.2bn) – the biggest float in the Gulf since DP World went public last year.
So while investors in the “sophisticated” markets of Europe and America sit on their hands and wonder whether the credit crisis will ever end, their Gulf counterparts are preparing for a listings bonanza that could finally give local markets lift-off.
Yet I still worry that the Gulf’s new enthusiasm will develop in a vacuum, with little input from the big foreign institutions that can really give the IPO surge the depth and permanence to sustain a real change in shareholder culture here.
Al Inma, for instance, is a big flotation, no doubt, with 70 per cent of its capital going on the market. But it is closed to non-Saudi investors and as long as the Kingdom retains its investment exclusivity it will be a closed book for the rest of the world. There is no sign of it opening in the near future.
The DIFX listings are different, and if they are the beginning of a trend, they do represent a real opportunity for the exchange to edge its way ahead in the race to become the region’s leading centre. It certainly seems as though the big trading families and groupings of the UAE have become convinced of the benefits of public market status.
The dynamics of family ownership – where generational ambitions may differ and capital-raising becomes an issue of ongoing control and ownership – lend themselves to the kind of structures now being promoted by the DIFX.
The most important factor encouraging private business to go for pubic listings on the DIFX is the change in minimum levels of share offerings. With the requirement to sell as little as 25 per cent of the capital, families can retain control and still have the benefit of access to the wider capital markets, while allowing themselves the flexibility of selling bigger tranches of shares at a later date.
The advisers too are adapting innovative techniques for the unique circumstances of the Gulf. The “first come, first served” approach of Morgan Stanley, advising Depa, must ensure investors’ capital is not tied up while administrators go through the process of calculating levels of oversubscription and returning applicants’ cash.
More schemes like this would be welcome in forthcoming flotations.
The problem with the DIFX has always been the after-market. Just a glance at the trading screen shows a depressingly familiar scene on a daily basis – the only trading of any kind takes place in DP World shares, with the rest of the listed stocks firmly locked in investor inertia.
The new listings will have to overcome this, and some of the measures they have already taken might encourage greater activity in their shares on a daily basis. That is one of the signs of a more mature market, where one man’s sale is another’s buying opportunity.
But what is really required is a change in investor attitude. The predictability of daily trading on the Dubai Financial Market – opening rise, mid-day profit taking, closing weakness – seems to typify investor psychology, and must be replaced by a greater enthusiasm to hold stocks for the longer term regardless of short-term changes.
This is where UAE investors, especially on the new DIFX listings, need to take some lessons from their western counterparts – you have to be bold to hold.
Be bold – hold the new IPOs