Dubai IPO market returns to life

Five years after Dubai teetered on the brink of financial disaster, there are signs emerging that the emirate’s initial public offering market is coming back to life as the owner of the world’s largest shopping mall prepares to sell shares to the public next month.

Emaar Properties, Dubai’s highest profile real estate group, said on Sunday it plans to list at least 15% of its profitable and fast-growing malls business, a unit that real-estate-services firm JLL values at about $10.6 billion. This would be the biggest share sale since 2007.

Fund managers and analysts say a successful IPO of Emaar Malls will pave the way for other local companies to follow suit. Among the potential issuers are two private equity groups, Gulf Capital and Ithmar Capital, as well as two government-owned property firms, Nakheel and Meraas Holding, according to bankers. Earlier this year, Emirates REIT and retailer Marka launched IPOs that generated strong investor interest.

The willingness of these companies to go public is a reflection of Dubai’s resurgent economy and underscores the main stock exchange’s performance—up 54% since the start of the year alone. The U.A.E.’s upgrade to emerging markets status by index compiler MSCI Inc. in May has also generated more interest from international institutions.

“There is an IPO renaissance in the U.A.E. and with the MSCI upgrade to Emerging Market status in May we continue to see positive momentum with clients considering an IPO,” said Declan Hayes, managing director, transaction services at Deloitte Corporate Finance.

The renewed IPO interest stands in contrast with Dubai’s predicament only a few years ago when many of the emirate’s state-owned holdings were involved in complex restructuring because they were unable to service debts accumulated in the precrisis years to fund expensive expansion plans at home and abroad.

IPO activity after 2009 dried up and the few companies that had the desire to float, including Abu Dhabi’s Gulf Marine Services, two hospital groups and Dubai developer Damac, opted for the London Stock Exchange  instead of a local listing.

The economies in the Persian Gulf have since then picked up steam and companies have started dusting off plans to go public again. In the first six months of this year, the value of all IPOs in the Gulf region tripled to $2.2 billion from the same period in 2013, according to figures from Ernst & Young.

“Taken together with the fact that Dubai has positioned itself as a financial services hub in the region, it isn’t surprising that we’ve seen an increase in the number of IPOs,” said Ghadir Abu Leil-Cooper, Baring Asset Management’s head of EMEA Equities. “This also reflects the decision of many corporate boards to raise financing through the market, which is a perfectly legitimate financing route, and sometimes the desire to monetize some of the value of a family shareholding while preserving the corporate structure.”

One potential sticking point for issuers looking at Dubai is that the main exchange requires companies to sell at least 55% of the firm. In the case of Emaar, which said it is selling at least 15% of its malls business, the regulator chose to grant it exemption from that rule, which some consider another sign Dubai is willing to accommodate potential issuers.

In another indication that Dubai’s IPO environment is improving, Damac the developer that listed in London last year, recently said it would offer holders of its global depository receipts the chance to convert those into ordinary shares which will be listed on the DFM.-WSJ