Dubai’s Emaar Says First Tranche Of Malls IPO Already Covered

Emaar Properties said institutional investors have committed to buying all the shares offered to them in the flotation of its shopping malls business only a day after the initial public offering (IPO) was launched.

Dubai’s largest real estate developer is aiming to raise as much as Dhs5.8 billion ($1.58 billion) from the offer of shares in Emaar Malls Group (EMG), which is expected to be the Gulf’s biggest stock sale since 2008.

On Sunday it offered two billion shares in EMG, representing 15.4 per cent of the unit’s share capital, in a price range of Dhs2.50 to Dhs2.90 per share. It has said it aims to allocate at least 60 per cent of the offer to institutions and no more than 40 per cent to retail investors.

In a brief statement to the Dubai bourse late on Monday, Emaar said it had “received sufficient orders to cover the entire tranche allocated to the qualified institutional investors at all prices within the range of Dhs2.50 to Dhs2.90 per share”.

The offer closes on Sept. 24 for retail investors and on Sept. 26 for institutional investors, with EMG shares then listing on the Dubai Financial Market on Oct. 2.

Some fund managers said the EMG offer is not particularly cheap, with brokerage Naeem Holding saying the price range suggested that EMG’s valuation was “a bit stretched”.

Naeem Holding estimated that at the mid-point of the range EMG would have a price-to-earnings ratio of 28.5, based on this year’s earnings. That would be above the parent company’s multiple of about 25 times earnings and the wider stock market’s 16, according to Reuters data.

CONSERVATIVE VALUATION

Other comparisons are more attractive, however. The offer values EMG at between 0.98 and 1.13 times its book value at the end of June. That valuation looks conservative compared with global peers, according to a Reuters Breakingviews analysis.

In any case, investors’ belief in Dubai’s economic boom may ensure a successful offer. The local economy is recovering strongly from its 2009 financial crisis on the back of a buoyant real estate market and growth in trade and tourism.

Also, IPO activity in Dubai has been virtually non-existent since the financial crisis and investors are now hungry for fresh equity. EMG is only the second flotation in five years for the DFM, Dubai’s main stock market.

The retail portion of the EMG offer could also attract heavy demand after strenuous marketing. Retail investors can buy the shares online and at bank branches around Dubai. Customers of Emirates NBD, Dubai’s biggest bank, can even buy the shares through the bank’s ATM machines.

All of EMG’s assets are in Dubai and include Dubai Mall, one of the world’s largest shopping centres. EMG claims that Dubai Mall sells roughly 50 percent of all luxury goods sold in the emirate.

EMG made a profit of Dhs617.2 million ($168.2 million) in the first half of 2014, up from Dhs498 million in the corresponding period last year. Revenue in the six months to June 30 was Dhs1.25 billion, against Dhs1.11 billion a year ago.

Dubai’s government owns about 30 per cent of Emaar Properties, which plans to pay shareholders a special dividend of around Dhs9 billion: Dhs5.3 billion from the IPO proceeds and Dhs3.7 billion from a dividend already paid by EMG to its parent.