UAE / Capital Markets
Andrew Tarbuck Partner, Head of Capital Markets, Corporate Commercial
In 2022, the United Arab Emirates (UAE ) is proving to be the hot jurisdiction for initial public offerings (IPOs) and listings. Following a good IPO vintage in 2021 in Abu Dhabi in particular, Dubai is getting in on the act after the highly successful IPO of Dubai Electricity and Water Authority. The utility’s float is the largest listing ever in the UAE and the largest listing in the Middle East since Saudi state oil giant Aramco went public on the Saudi Exchange in 2019. The offering to institutional, retail and employee investors saw high subscription demand resulting in an upsize to the total number of shares offered and, importantly, saw strong performance in the after-market with the share price surging by up to +20% in the first morning trading session. The IPO captured public awareness and was widely marketed using multiple media in order to boost retail investor demand in particular. It seems that the offering was not impeded by the geopolitical issues surrounding Ukraine. A majority-owned Dubai government issuer in a reliable sector with good dividend prospects was, and is, clearly highly attractive to investors. The IPO will not only encourage the Dubai Financial Market (DFM) and the UAE’s capital markets but also improve the Government of Dubai’s balance sheet.
The IPO surge continues with the successful listing of ADNOC’s Borouge Plc which is the largest ever listing on the Abu Dhabi Securities Exchange (ADX). The offering was 42 times over-subscribed. Also, the first Special Purpose Acquisition Company (SPAC) was listed on the ADX by Chimera Capital and ADQ. Further, on 9 June 2022, Tecom Group PJSC announced its intention to float on the DFM.
The good news for the DFM and the ADX is that there is more to come. Dubai announced in November 2021 that it had slated 10 state-owned companies to list on the DFM, and press releases note the potential IPO of a privately backed SPAC on the ADX. The IPO pipeline is certainly looking strong for 2022 and 2023 as the increased popularity of the UAE exchanges self-perpetuates the optimism. The UAE has become a potential listing venue for global issuers and not just regional issuers.
The performance of the ADX and DFM over the past 12 months has made the exchanges a very attractive option for potential issuers but there are several reasons for the heat in the UAE’s equity capital markets:
Material improvements to the legal and regulatory environment designed to make the listing and IPO process more transparent and efficient. The UAE’s Securities and Commodities Authority (SCA) has focussed on updating its own regulations and forcing through changes to the Commercial Companies Law (which was completely reissued in November 2021) to iron out common issues raised by potential IPO candidates and their advisers.
The markets (DFM and ADX) have been given more autonomy in the listing process by SCA. This has encouraged the exchanges to take the initiative and also assist on the liaison with SCA.
Macroeconomic tailwinds such as an elevated oil price have provided a benign economic backdrop to encourage potential issuers to use the equity capital markets to raise capital. Business confidence in the UAE is certainly elevated and there is increased economic activity (certainly if the traffic levels and the wait for restaurant reservations is anything to go by!).
Regulatory developments such as the introduction of specific rules by SCA to allow for offerings and listings of SPACs provides different ways for companies to utilise the UAE’s securities markets.
The performance of the ADX and the DFM against benchmark exchanges (and even the well-known international exchanges) has been impressive making them truly competitive alternative listing venues. This has fuelled potential cross-listings as well as the IPO listings, such as the cross-listing of Bahrain-based GFH Financial Group BSC on the ADX. We are seeing a significant level of enquiries for cross-listing on the UAE’s exchanges including alternatives for Russian securities listed on western exchanges.
A hot IPO market is not without its challenges. Issuers are vying to find an IPO window where they have a free run to market to potential investors, relying on scarcity value to assist the book-built offer price per share. With large state-owned issuers coming to the UAE’s markets (generally offering good dividend returns), investor demand is sucked up and so skill (or luck) needs to be expertly utilised by financial advisers to find the right window and the right investors for their issuer clients. It is certainly a busy period for all equity capital markets advisers such as banks, financial advisers, lawyers, auditors, PR consultants and market consultants. The key to prolonged success will be finding space for private issuers as well as government-backed issuers to create a balanced and mixed market for investors that might be looking for a steady dividend yield or long-term equity growth in innovative industry sectors such as tech or sustainable energy.
In the next few months, either side of summer expect to see more government-owned IPOs which will be the significant issuers but also look out for private issuers in the form of SPACs. The SPAC markets in the US and European markets have lost some of their 2021 lustre but the UAE is now ripe to take up the baton. The explanation is three-fold – there are high quality sponsors who are prepared to put up the risk capital in the SPAC; there are potential investors with deep pockets looking to invest in a different asset class; and there are good target companies in the Middle East region to enable a timely de-SPAC transaction, driven partly by an exponentially growing venture capital scene. There will certainly be more cross-listings as the global geopolitical and economic landscape remains volatile but the UAE continues to grow and execute on its long term growth vision.
For further information, please contact Andrew Tarbuck.
Published in July 2022
