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Sun 29 Oct 2006 04:00 AM

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Beware the IPO danger

Companies should think twice before running to the stock market. I have given up trying to work out what is happening with the region’s stock markets, as the harder you try and study the facts, the less sense they make.

Companies should think twice before running to the stock market. I have given up trying to work out what is happening with the region’s stock markets, as the harder you try and study the facts, the less sense they make.

But as we report in detail this week, one thing is clear: The Gulf is going crazy for stock market flotations.

Latest figures show that in the first nine months of this year 17 IPOs have raised a total of US$6.2bn in the GCC, a rise of 45% compared to the same period of the previous year, and are foreseen to reach US$8bn until December. Some 134 companies are preparing to launch an IPO while another 77 have announced plans to go public, but they yet have to meet the legal requirements.

Everywhere you look, across industries and sizes of companies, the name of the game is IPO.

But is it such a good idea? At first sight, yes. A decent track record, profitability and increasing revenues are enough reason. There is no better way to expand the business than putting it on the stock market.

Let investors get a share of the action, while gaining literally hundreds of millions of dollars for expansion. With the financial markets in Dubai, Bahrain and Qatar trying to outdo each other for business, there is no shortage of takers when it comes to finding a place to list your business.

That said, entrepreneurs and those established business stars who run hugely successful family businesses should think long and hard.

For every success story, the IPO road is littered with cases of chaos. As many executives have found to their cost, once you go down the stock market road, your company is run by shareholders and its future often depends on the mood of analysts. Short-term growth is everything.

They either love you or hate you - and the share price follows that feeling.

As a simple rule of thumb, the more creative you are, the less likely you are to be successful in the stock market. Remember what happened to Sir Richard Branson and Tommy Hilfiger?

Two of the business world’s most creative geniuses, but as they tell us this week, they would never go near the stock market again. They were badly burned, and ultimately led down by investors pursuing immediate share price gains.

Let their experiences be a solitary reminder of the pitfalls. Pitching for successTalk has re-surfaced this week of a possible bid by Dubai Holding for Liverpool Football Club. It is hardly surprising: Liverpool is a huge asset and great brand that in my view, even at US$500m, is undervalued.

I should say straight away that I am no fan of the club. In fact, as an Arsenal fan, the last thing I want to see is Liverpool getting any kind of financial backing.

But if I put my neutral hat on, it makes a lot of sense. Liverpool needs to urgently find around US$200m towards the building of a new 60,000 seater stadium, and also has around US$120m of debts to clear.

However, the future is not red but black. An extension of the Liverpool brand in the Middle East and Far East, which I’m sure Dubai Holding could do very well, will, according to analysts add another 20% to revenues. The new stadium would raise income by 35% more.

And in the unlikely event of Liverpool ever winning anything again, the big money really would roll in. OPEC is meant to be a cartel, but to be frank, my friend who works at Eppco petrol station has more chance of running an oil cartel than many of OPEC’s members.

Last week they met in Qatar to discuss ways of cutting back oil production, because of worries the price of oil was falling “too low.” At US$59 a barrel, it doesn’t sound that low. As for OPEC’s argument that higher prices mean higher revenues, which in turn means there is more cash to invest in refineries, forget it.

Any oil expert, even a not very good one, will tell you that prices of US$35 a barrel are enough for both good profit and investment in refineries.

Worse still, the decision to cut back on production hasn’t been embraced by all members, who are already squabbling over what levels to cut to.

And to add to the farce of OPEC, last week’s “crucial” meeting was missed by OPEC’s Nigerian president, because he was stuck in traffic in Lagos and missed his flight to Qatar.

What an embarrassing fiasco.

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