Five years after collapsing, Dubai’s strengthening real-estate industry is getting a vote of confidence from investors in the emirate’s stock market.
In September, Dubai’s flagship developer Emaar Properties spun off its malls business in a $1.6 billion initial public offering that enjoyed strong demand from investors. The IPO of Emaar Malls—whose main asset is Dubai Mall, one of the largest shopping centers in the world—marked the biggest share sale in the United Arab Emirates since 2007.
Shares of the company are trading about 10% above their offering price. Dubai’s benchmark index has fallen roughly 7% since Oct. 2, the day Emaar Malls started trading.
Other real-estate-related deals are in the pipeline. Emaar Properties Chairman Mohamed Alabbar said last month that he is pursuing an IPO of the company’s hospitality arm, which owns and manages hotels brands including the Address and Armani hotels, as well as golf retreats, a polo club and the Dubai Marina Yacht Club.
Meanwhile, a $375 million IPO by Amanat Holdings closed this week. The U.A.E.-based company doesn’t own property. Rather, it plans to use the IPO proceeds to make acquisitions of health-care and education companies.
Another IPO candidate is government-owned Meraas Holding, which is looking to spin off its theme-park business, according to people familiar with the matter. Meraas has hired investment banks Goldman Sachs Group Inc. and HSBC Holdings PLC for its IPO, which could take place in coming months, the people said.
The increase in stock offerings coincides with a revival in the Dubai property market. Many of Dubai’s government entities and public companies saw some sources of revenue dry up when the emirate’s property market collapsed in 2009.
The carnage touched Dubai World and other state-owned entities, which were unable to service billions of dollars of debt they accumulated during a global buying spree.
Listed companies also suffered. Mortgage firm Amlak Finance went public in 2004, but its shares haven’t traded since 2008 when they were suspended as the company’s troubles started to emerge. Its creditors only this year agreed on a $2.7 billion restructuring plan.
Bankers and fund managers said the interest in new listings is largely the result of index compiler MSCI reclassifying the U.A.E. to emerging markets from frontier status earlier this year, which helped bring in capital from foreign institutional investors. In addition, the U.A.E. is offering higher returns compared with other emerging markets, they said.
“The U.A.E. offers significant growth opportunities at a time when developed markets are slowing down,” said Yacine Amor, head of Central and Eastern Europe, Middle East and Africa equity capital markets at Bank of America Merrill Lynch, one of the bookrunners on the Emaar Malls IPO. “It is also perceived as a lower risk country compared to most emerging markets.”
The real-estate offerings also are being helped by a broader diversification of the Dubai economy. Stock investors will now have the chance to buy shares in companies linked to the retail and tourism sector, which have supported the emirate’s turnaround but were previously inaccessible, analysts said.
“The recent IPOs are a strong reflection of the second phase of Dubai’s and the U.A.E.’s economic development,” said Jahangir Aka, Dubai-based managing director of financial-services firm SEI Investments Middle East.
But the emirate’s ascent has sparked concerns that it could repeat the same mistakes in the run-up to the crisis in 2009. Dubai’s turnaround also could be derailed or at least slowed down by some external factors.
“There are still concerns over the geopolitical situation in the broader region and the recent decline in the oil price, and how these might affect the Dubai economy going forward,” said Mark Diab, head of Middle East and North Africa equities at U.K.-based hedge-fund manager Man Group PLC. He said he expects economic activity “to remain robust for the medium term at least.”
Some investors also are encouraged that Dubai’s condo market, which showed steep price increases earlier this year, has cooled.
Dubai authorities are credited with implementing some measures to prevent speculators again from causing excessive market swings.
“The general attitude and maturity of both investors and the institutions is different. The demand is different. There are signs that the speculative elements are reduced,” said Mr. Aka of SEI Investments.-Bloomberg
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