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Wed 22 Sep 2010 06:18 PM

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Axiom Telecom IPO seen discounted to sell

Axiom, part-owned by a unit of Dubai Holding, has been eyeing a listing since 2005.

Axiom Telecom IPO seen discounted to sell
AXIOM IPO: An Axiom IPO would offer UAE investors a means to diversify away from the dominant property and banking sectors.(Getty Images)

Any initial public offering from Dubai based mobile handset retailer Axiom Telecom would need to be priced at a big enough discount to reflect scarce liquidity and weak valuations on UAE bourses.

Axiom plans to list on Nasdaq Dubai in 2010, sources familiar with the matter told Reuters on Tuesday, and an announcement could come as early as next week in what would be the country's first IPO for more than two years.

Axiom, part-owned by a unit of indebted conglomerate Dubai Holding, has been eyeing a listing since 2005, and in 2007 its chief executive said the firm wanted to float by 2010.

Rami Sidani, who manages $250 million as portfolio manager and head of investments at Schroders Middle East said: "Liquidity is an issue across the board, but if the right company comes to the market at the right price, there will be sufficient appetite."

He added: "Axiom is a great brand with very strong market share in the UAE, plus additional growth from its presence in Saudi Arabia. Any company must take into consideration the attractive valuations in the secondary market."

Dubai's main index is down 7.2 percent year to date and 73 percent below a 2008 peak as the emirate's property crash and estimated $110 billion of government linked debt has hammered shares. Many stocks are trading below their book value and their fair value, analysts say.

Sources said Axiom Telecom would list on Nasdaq Dubai, where a minimum 25 percent of shares must be floated, potentially allowing the firm to retain majority control. In contrast, typically at least 55 percent of shares must be sold for an IPO on the Dubai Financial Market(DFM).

Activity on the Nasdaq Dubai is limited, with only one stock, DP World, trading on a daily basis. The ports operator accounted for 92 percent of the bourse's August turnover of $78.7 million.

DFM trading has also slumped and is poised to set a six year low, but is still much more active than its sister bourse, averaging $82.22 million daily this year, and Nasdaq Dubai's sluggish trade could affect Axiom's IPO price, said Hashem Montasser, EFG-Hermes head asset management in Dubai.

He added: "Most of the companies that have come to market through Nasdaq Dubai have not performed well," said Montasser. "Based on this experience, institutional investors in a (Nasdaq Dubai) IPO would want a discount on the fair value to reflect these liquidity concerns."

These worries will also depend on the size of the free float offered through the IPO, he added.

An Axiom IPO would offer UAE investors a means to diversify away from the dominant property and banking sectors.

Schroders' Sidani said: "The UAE economy is in transition, moving to a more mature stage following a five-year real estate boom, and so we need greater exposure to companies in other sectors of the economy such as tourism, consumption and services, and Axiom falls within that theme."

"Investors are hungry for more opportunities to diversify their portfolios."

The mobile handset sector accounted for about 13 percent of UAE electronics spending in 2009 and will reach $410 million by 2014, according to a report from Business Monitor International (BMI) in September.

Mobile phone penetration in the UAE will hit 245 percent by 2014, it added.(Reuters)

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