- A logo of Emaar is seen near the Dubai Mall
Emaar Properties plans to float at least 15% of its profitable and fast-growing malls business in a September IPO. The chances are high though that Dubai’s flagship developer may sell an even bigger stake.
It all depends on getting the right valuation for Emaar Malls Group.
After all, Emaar will be cutting its own stake in the unit – which it acknowledges as one of the company’s high-growth businesses. And given Dubai’s rise as a trade and tourism hub, the asset has strong potential to generate recurring revenue on a sustainable basis.
Which means Emaar has to weigh its immediate need to raise cash and unlock value with a dilution of possible future earnings.
Importantly, Emaar–in which the debt-laden Dubai government is the single largest shareholder–said it hopes to pay out about $1.44 billion from the IPO proceeds as a dividend.
According to Emaar, the fair market value of its malls unit is estimated at about $10.6 billion. A back of the envelope calculation would imply that Emaar’s plan to sell at least 15% of the business would help it generate around $1.6 billion.
Unless Emaar intends to return almost the entire IPO proceeds to its shareholders, its dividend plan suggests that the IPO size will likely be bigger.
Most analysts agree that the malls business is one of Emaar’s better assets and getting a premium valuation for the business may not be such a problem.
Besides, the stake sale is not very large and demand is likely to outstrip supply in a market where public offerings have slowed to a trickle since the global financial crisis battered the emirate’s economy. Emaar’s malls business has been one of the main beneficiaries of a strong Dubai recovery since.
Eventually, much will depend on the response that Emaar gets from potential institutional investors in the coming weeks.
An Emaar spokesperson said any cash left from the planned IPO, after paying out the dividend, will likely be used to meet its working capital requirements.
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(via WSJ Blogs)