Shares in Dubai Parks and Resorts (DPR) tumbled on their bourse debut on Wednesday, demonstrating how plunging oil prices and a glut of cash calls have for now exhausted retail investor demand in Dubai’s volatile bourse.
Retail investors dominate trading on the Dubai Financial Market and they powered the market’s spectacular recovery from its 2008-2010 crash. The main index more than tripled in the 18 months to May 2014, sparking a flurry of initial public offers this year after a freeze of about five years.
DPR’s IPO last month, which raised Dhs2.5 billion ($689 million), was the latest offer. But its shares ended nine per cent lower on Wednesday, a surprising slump for one of the few direct plays on Dubai’s tourism boom; the firm is building a $2.9 billion amusement park complex that is to be completed in 2016.
“Retail investors have less liquidity after so many IPOs,” said Juma, a local investor on the DFM’s trading floor who declined to give his full name.
“Investors have run out of cash, their money is all in these new companies. But the market will come good – when oil prices return to a good price, there will be more confidence.”
Dubai’s index fell 0.2 per cent on Wednesday and is down 28 per cent from its May peak. Since economies in the region depend heavily on oil exports, oil’s slide – Brent crude has fallen 43 per cent from June’s high – has hit investor sentiment hard, even though analysts believe earnings at most Dubai companies will not be affected much.
DPR’s flotation was unusual for the United Arab Emirates in that retail investors were allotted only a tenth of the 40 per cent of the company’s capital sold in the IPO. The retail portion was 1.63 times oversubscribed, an uncommonly low level for a Gulf IPO.
Sixty per cent of the floated shares went to institutions, 25 per cent to wealthy individuals and five per cent to state-owned Emirates Investment Authority – none of which were believed to be major sellers of the stock on Wednesday.
Instead, retail investors who borrowed to buy shares during the market’s uptrend, and are now feeling the financial pinch, were believed to be dumping DPR.
“You don’t sell today unless you need the money – some people are selling because they have taken bank loans,” said Mohammed, another local investor.
Raed al-Nuaimi, chief executive of DPR, said the firm had not considered delaying the IPO despite the drop of Gulf markets.
“We need to have a fully funded project now,” Nuaimi told reporters.
DPR will not pay a dividend before 2018, the year it expects to turn profitable, said chief financial officer Sandesh Pandhare. The company is part of Meraas Holding, owned by Dubai’s ruler Sheikh Mohammed bin Rashid al-Maktoum.