Masood Al Awar has an interesting analogy for an initial public offering (IPO): he describes it as being like a wedding night. As the CEO of Tasweek Real Estate Development and Marketing, which is set to launch a AED1bn ($272m) IPO in the fourth quarter later this year, does that then make him the nervous groom? Is he satisfied that everything is in place and it all doesn’t go horribly wrong before the honeymoon period is over?
“The IPO is called the wedding night and the listing is the life after, so we have to take care of the listing even more. We are trying to build up the equity story and what Tasweek is all about and where we are going from here,” he says, laying out his proposal.
As much as he likes his analogies and catchy metaphors, Al Awar also likes his data and he has certainly done his number crunching ahead of the big day later this year. “We analysed that 60 percent of the IPO requirement — why people want to invest in a company — they base their decision on the financials. So things like the earnings per share, growth, sales and debt-to-equity ratio and how the company has managed itself.
“The other 40 percent is on the management quality, the systems in place and the corporate governance. If these two components are strong we can think about going public.”
Many certainly agree with him. Husam Hourani, managing partner at Al Tamimi & Company, one of the region’s top IPO lawyers, recently said the public listings in the Gulf countries are finally set to boom again, with at least 20 IPOs in the pipeline.
Hourani told Reuters the IPO boom in the Gulf was helped by lighter regulation and legal reforms as governments seek to diversify their oil-dependent economies.
The total value of IPOs in the six Gulf Cooperation Council (GCC) countries peaked at a record $12bn in 2007 and then plunged as markets froze up. Last year, GCC IPOs totalled roughly $2bn.
IPO activity has recovered more slowly in the GCC than it has in much of the world. Some Gulf firms have preferred to go to foreign markets such as London, seeking greater liquidity and less restrictive rules.
Al Awar is still targeting December this year for the listing and says the motivation is clear and the “objective is that we want to create wealth for our five major sectors: Number one is the shareholder, two is the stakeholders, then our customers, the industry and the employees who have made the company what it is today.”
While the likes of Damac have listed in London, Al Awar is staying close to home and is currently in discussions with various players. “We will do our listing locally in the UAE. So far we are playing with those available: the DFM [Dubai Financial Market], ADX [Abu Dhabi Securities Exchange] and Nasdaq. We have met with them and are going through all their processes and procedures.”
The figure that has been mentioned consistently is AED1bn, one Al Awar is still confident about. “We have a capital of AED300m and the norm in the real estate industry is 30:70, so we know that this is a AED1bn company. We have international investors who have come from Malaysia, the GCC and also from Europe. Our portfolio is from Morocco to the UAE to Malaysia and we are proposing to go to Indonesia. With the projects increasing we know it was the right time to go for the IPO.”
Of course, this isn’t the first time that Al Awar has been in a unique position building up to a landmark occasion. He holds the title of being the first real estate agent to sell freehold property in Dubai and he was also instrumental in arranging the first visa for an overseas property owner.
“It was the Dubai Marina project — that was the first ever ownership of a planned freehold. When I started it was a 99-year lease and it turned into a freehold within six months,” he recalls.
He made the ground-breaking sale while he was at Emaar Properties, the developer of the Burj Khalifa — the world’s tallest building — where he worked for seven years.
After earning his stripes at the Dubai master developer, Al Awar worked for Abu Dhabi’s Sorouh Real Estate for two years before deciding it was time to go it alone. He then helped set up Tasweek Real Estate Development and Marketing at the beginning of 2009.
In between selling that first property and setting up shop on his own, the UAE market went on a rollercoaster ride, with prices shooting up nearly as fast as floors were added to the Burj Khalifa and then slumping nearly 60 percent as they went into freefall in the wake of the Lehman Brothers crash and the subsequent global financial tsunami that swept across the world’s stock markets.
In December, high-profile real estate rival Damac raised $348m from its London share offer, an amount that was described as a lukewarm response to the first share sale by a Dubai property firm since the emirate’s real estate crash four years ago. The luxury housing firm, which describes its new villa project as the Beverly Hills of Dubai, had originally aimed to raise $500m.
Coupled with this, this summer witnessed the spectacular rise and fall of Arabtec, one of Dubai’s most heavily traded stocks, which taught those watching local bourses closely some hard lessons about how risky the region remains for investors even as its rapid economic growth lures billions of dollars in fresh funds from abroad.
In May, the United Arab Emirates and Qatar were upgraded to emerging market status by index compiler MSCI, a big step in the Gulf’s effort to become a mainstream destination for international portfolio investors. But within weeks, a collapse in the share price of Arabtec, a major regional construction firm and one of Dubai’s most prominent companies, has shown the limits of that progress.
The sudden resignation of Arabtec’s chief executive, who had unexpectedly amassed a huge stake in the firm, fuelled rumours of management turmoil. The share price halved in less than a month and erased some $3.9bn of market value. Looking at the lacklustre response in London to Damac and the rollercoaster ride taking place in the UAE, is Al Awar crazy to enter the stage at this point?
“Although it looks challenging, but we always say that if it’s not possible then that’s what we have to do. Do what others think is impossible,” he says philosophically. “We are one entity but we look at how competitors do things, and we are always trying to be different.
“We have a different business model. We have cash, assets, income and a pipeline and we know 60 percent of IPO decisions are on financials and debt-to-ratio and our debt-to-ratio is very low. Which means there is a growth margin that is high.”
The figures certainly do look healthy. In April, Tasweek posted a 112 percent increase in yearly profit over 2012. While it did not give exact figures, the company attributed the results mainly to a 77 percent increase in annual revenues as well as a 60 percent improvement in the net profit ratio compared to 50 percent in the previous year.
Tasweek also boosted its investment portfolio by 27 percent in 2013 as it consolidated investments in key developments like healthcare city in Morocco and launched major projects such as a mixed-use property comprising a hospital, a five-star hotel, and a residential building.
“Despite being accustomed to year-on-year growth, Tasweek will continue to pursue higher levels of quality and service excellence,” says Nasser Bin Obood Alfalasi, Tasweek’s chairman.
In terms of its immediate projects, Tasweek’s Morocco development, the Marrakech Healthcare City — which will be around 21,000 sq m in size and will include a 160-bed private hospital, a 40-room boutique hotel and 56 residential apartments — is nearly 80 percent built and nearing completion.
“It is one of the first projects we are developing in that market. We are proud we are doing something developers wanted to do but because of the crisis couldn’t do. We had an advantage because we could start something really fast. It is bound to be completed by the end of this year,” Al Awar says.
In terms of the hotel element, he says he is currently in talks with potential operators and it is down to two strong contenders: a well-known Swiss chain of hotels and another South African chain of hotels.
Elswhere, the Haven Lakeside Residences will be the tallest and the most luxurious condo development in Perak (Ipoh), Malaysia and will include three residential towers consisting of 512 condominiums units.
“In Malaysia it is going very well. We are doing the handover and the leasing of the $80m joint venture project,” Al Awar says, adding that he is also currently in talks for more potential projects in Asia, specifically in Indonesia and Thailand.
Closer to home, his analysis of the Dubai and wider UAE market is that the fast-growing residential real estate sector is likely to peak in 2015, but is unlikely to suffer the same dramatic collapse seen in 2008 and 2009.
“We do a lot of analytics and we do a lot of market research. We know that every eight or seven years there are some disturbance in the market and nothing can climb so rapidly,” he says. “I think 2015 will be the peak but if we sustain it, [growth] can be prolonged to avoid the downturn… avoid the pitfall.”
While property prices plummeted nearly 60 percent in the aftermath of the Dubai property crash in 2008 and 2009, Al Awar says such a dramatic drop is unlikely this time and growth will plateau as the market is being managed in a more strategic way this time around.
“We have to make sure the pitfall is prohibited and we manage the cash flow and move forward. It is about sustainability and growth,” he says.
His comments echo those expressed in a report earlier this summer by property consultants JLL, which claimed that growth in the Dubai residential market is slowing as government steps to curb speculative buying have an impact and higher prices start to affect demand.
Second-quarter trends in the market suggest the risks of the Dubai property market overheating and then crashing, as it did in 2008-2009, are easing, Craig Plumb, JLL’s head of research for the Middle East and North Africa, told Reuters.
“It’s good news that the market is slowing down,” Plumb said. He added that when the market eventually reached the falling phase of its cycle, the pull-back was unlikely to be as violent as it was five years ago, when it triggered a corporate debt crisis in the emirate.
For now, the residential market is still climbing rapidly; average sale prices jumped 36 percent from a year earlier in the second quarter, compared to 33 percent in the first. Rents, meanwhile, gained 24 percent, after 23 percent in the previous quarter.
But on a quarter-on-quarter basis, that growth is slowing. Sales prices grew 6 percent in the second quarter, down from 10 percent in the previous quarter, JLL calculated. The increase in rents dropped to 3 percent from 7 percent.
Seeking to avoid another boom-bust cycle, authorities took a series of steps last year to cool the market. The UAE central bank imposed caps on mortgage loans, and Dubai doubled its transaction fee on property deals.
Plumb said these steps were having an impact and in addition, market forces were at work as, with prices in many areas back near their pre-crash levels, some buyers started to question the affordability of prices.
The cooling of the market can be seen in falling sales volumes for all residential sectors, with Dubai government data showing villa sales shrank almost 50 percent from a year earlier in May, JLL said.
Al Awar’s business hero is his former boss at Emaar, the Burj Khalifa developer’s chairman Mohamed Alabbar. Later this year, Emaar will also launch an IPO of its malls business and is expected to raise AED8-9bn ($2.18-$2.45bn), making it one of the region’s largest equity offers since 2008.
“What made Emaar successful as a company is that they created wealth for major stakeholders and it is what I learnt from Emaar… We will be a mini Emaar and we will create wealth.
“At Emaar I was managing customer satisfaction, employee satisfaction, corporate performance and the mystery shopping and we found out people fall in love with a company if they are treated well, you are creating added value for them and you listen to them. If that is available in the company the company has a lot of prospects.”
Let’s hope all goes well for Tasweek when its big day arrives later this year. With luck, it’ll be a marriage made in heaven that lies ahead — and not a bitter divorce.
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