By Claire Valdini
Khalaf Al Habtoor’s plans to raise $1.6bn in a stock market listing took investors by surprise last week. But it could also prove to be exactly the kick-start the market has been waiting for
Khalaf Al Habtoor has been dreaming of announcing an initial public offering (IPO) for more than two decades. The Emirati, who made his fortune in construction and hotels, has often talked about the importance of going public as a way of securing the Al Habtoor Group’s future beyond its current management. But it wasn’t until last week that the chairman and founder officially announced his intentions to go public.
“We’ve been talking about an IPO for more than 20 years but for some reason or another it hasn’t happened. Now, after several meetings with Nasdaq Dubai and DIFC and the encouragement from financial institutions who are interested in shares, we will go for an IPO,” Al Habtoor tells Arabian Business.
The group, whose operations span businesses ranging from construction, hospitality, automotive and real estate, hopes to raise $1.3-$1.6bn by listing on the Nasdaq Dubai as early as March next year as it moves to expand its business into Europe and new areas of interest.
“We are not divesting our shares; we are going to release the capital and all of the money will go to the company, it will not go to any [one] person. We are going to reinvest it in projects within our group, in the UAE and outside the UAE in countries like the United Kingdom and Paris,” adds Al Habtoor.
The number of family-owned companies looking to go public plunged in the wake of the economic downturn amid weak investor sentiment due to underperforming stocks and risk aversion.
While regional IPO activity has started to show some signs of recovery, analysts say the Al Habtoor Group’s listing could act as a boost for other family businesses to follow suit and at the same time boost liquidity on the Nasdaq Dubai, which has struggled to attract big-ticket names amid low trading volumes.
“This will be a turning point for them [the Nasdaq Dubai], a turning point for the industry and for the market capitalisation as a whole,” says Haissam Arabi, founder and CEO of Gulfmena Investments.
“If the likes of the Al Habtoor Group and other family businesses join, then you are getting closer and closer to Saudi Arabia and [the UAE] establishing itself as a second largest market of the region,” he adds.
The Dubai-based firm is likely to have opted for the dollar-denominated bourse over its competitors — the Dubai Financial Market (DFM) or the Abu Dhabi Securities Exchange (ADX) — due to regulations that require an ongoing 25 percent free float is maintained rather than the 55 percent required on the DFM and ADX. Al Habtoor says he will list 25 percent of the value of the company on the bourse, enabling its management to release the capital while still maintaining control of the firm.
“The ability to only sell down 25 percent of your equity is very attractive for the types of businesses Nasdaq Dubai wants to list there because they tend to be privately held family businesses and naturally they don’t want to give away control,” says Steve Drake, partner — Capital Markets Middle East at PwC.
Regional market conditions and investor appetite plunged in 2008 when Dubai’s six-year real estate and construction boom came to a halt. Concerns in the euro zone coupled with the impact of the Arab Spring last year have continued to weigh on capital markets with just two Saudi-based companies raising a total of $78m in the first quarter of the year, according to data from PwC. Meanwhile, another Saudi firm, Al Tayyar Travel, raised $365m from its 30 percent offering in May.
“There has been a little bit [of IPO activity] in the Saudi market but nothing of great significance,” says Drake.
“Do I see that changing over the next twelve months? I think from in the activity that I see and that PwC is involved with the answer is yes. But the majority of the transactions are fairly limited to the Saudi market and they are still at relatively early stages so it will be the back end of this year/the early part of next year before those transactions come to the market,” he adds.
Lack of liquidity has forced many local companies looking to expand their operations to seek funding elsewhere. DP World, the world’s third-largest ports operator, dual listed on the London Stock Exchange in June 2011. Abu Dhabi-based NMC Health also opted for the UK-based bourse in April, successfully raising £117m ($187m) in a move that drew criticism from Nasdaq Dubai’s former chief executive, Jeff Singer. Meanwhile, Dubai’s Daman Investments sold a 22.7 percent stake through a private placement in June following a decision to delay its plans to IPO until 2015.
Nasdaq Dubai, incorporated in 2005, has struggled to attract retail investors who prefer to trade on the DFM, which has more stocks and greater liquidity. Several companies, including jeweller Damas International, have delisted in recent years, leaving it with just two stocks, DP World and Depa, and it hasn't seen an IPO since 2008.
But the future of the bourse could be starting to look up. The decision to merge its back office with the DFM in 2010 helped reduced running costs and while recent talk of introducing a secondary market for small and medium sized enterprises has yet to be finalised, the move could help boost liquidity. In June London-based RegisCard announced its intentions to IPO on the exchange as it looks to tap opportunities in the financial services sector in emerging markets.
But it is the Al Habtoor Group’s decision to list on the exchange that could not provide the gravitas it has long craved. “The Nasdaq Dubai itself is hungry and in need of a real gem and this could be the gem that they are waiting for, the Emaar equivalent of the DFM,” says Arabi.
“It does need a substantial offering of that size to attract the level of investor appetite that the exchange is seeking to attract so, coupled with the fact that there is interest again in the equity markets, I think a ticket offering like that may well be the thing that it needs,” adds Drake.
Al Habtoor, who hopes to list in March but may push it back to October if the group hasn’t completed its prospectus and due diligence before the quieter summer months, says he hopes the move will encourage other family-owned business to go public. “If there is a family-owned company converted into a public [entity] with a good background, good knowledge, good history, I think this will activate Nasdaq Dubai positivity.
“This will also encourage other families, who have solid business with a good history and strong background in management to list,” he adds.
The Dubai-based conglomerate, which is also studying the possibility of a dual listing in London or Saudi Arabia, plans to use the funds raised to expand its business into new sectors.
The firm has for several years discussed plans to acquire hotels in Europe and is currently in talks with three five-star hotels in Paris and is looking at several five-star hotels in London. “We are [negotiating] three hotels in Paris but maybe we are choosing one only. London, we are also looking — there are several but location and prices and return are not satisfactory to us. They are five-star,” says Al Habtoor.
The sale will also fund a new area of expansion into healthcare. The group, which has built several government hospitals in Dubai, is eying private hospitals in Dubai, London and Munich. It will also expand its auto division, which has exclusive rights to distribute Bentley, McLaren, Bugatti and Mitsubishi vehicles in the UAE. The group has located a plot of land in Dubai to build a hospital, which will be run by an outside operator, and is planning to expand its automotive business in the UAE and possibly abroad.
The conglomerate may also acquire agricultural companies in Central and Eastern Europe to buy wheat and cattle, adds Al Habtoor. “Buying agricultural land, for example, we are studying the possibility in four countries; Czech Republic, Romania, Hungary and Slovakia….We are looking into that as well because the future is the food; we are looking to wheat and cattle.”
Al Habtoor, which has appointed Chicago-based Grant Thornton as the group’s advisor, says institutional investors have already expressed interested in acquiring five percent of the company while the remaining stock will be listed on the bourse.
Analysts add that the IPO is likely to be well received by institutional and local investors, keen to snap up shares in a company that has continued to expand its own operations amid renewed confidence in the UAE and Dubai in particular. “The Al Habtoor Group has a brand that is well-established, they are deep-rooted in the business and they represent the large caps/the blue chips that people want to invest in,” says Arabi, who adds that regional appetite “is very ready” for an IPO of this size.
“Over the last three years a number of business have been interested in the equities market but for one reason or another — the crisis, the downturn — it just hasn’t been the right time for them so they have sought alternative funding. I would say that appetite has been there but it hasn’t been able to manifest itself in listing and now I would expect that to turn around,” adds Drake.
Going down the IPO road may have been twenty years in the planning for Al Habtoor – but by doing so, he may just be about to secure the Nasdaq Dubai’s future for the next two decades.
Al Habtoor Group should consider the following during the IPO.
1. Valuations of the Company should be more realistic. Should not be like Facebook IPO.
2. The pricing should be attractive not only attractive to institutions but also to retail individual investors. A small discount of 5% to individual retail investors would be a great idea.
3. 20 to 30% of the offering should be reserved for small and retail investors.
4. The offering should be through book building process where in the offering price shall be finalized based on the bidding received by the buyers. Investment Bankers should fix the the floor price very attractively so that investors are left with some value on their plates.
This is the first UAE and family owned conglomerate to be listed .. Wish Al Habtoor best of luck and success in their plans .
This will make or break Nasdaq Dubai, although you can be pretty sure the offering will be well over-subscribed, even for the window dressing value. There is no risk to Al Habtoor because the government will be in the gloaming to ensure this goes according to plan. It may well create the liquidity that has eluded the remaining dozen stocks, and it will certainly take the spotlight off the ginormous debt problems facing Dubai Group, Nakheel et al.