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Sat 25 Jun 2005 04:00 AM

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Developers turn to investors to fuel the next wave of expansion

Rights issues and initial public offerings are set to raise billions for future Gulf construction projects.

Two weeks from now, Emaar shareholders will be invited to attend an extraordinary general meeting at Building Number One of the Emaar Business Park in Dubai.

They will be asked to approve a decision already taken by the board of directors to double the company’s capital to US $1.54 billion through a two for one rights issue.

Emaar has become the latest in a string of developers that are turning to shareholders and investors to raise a multi billion-dollar war chest for future development projects across the Gulf.

There appears to be an insatiable appetite in the investment markets for construction, which has been underlined by the overwhelming investor response to a string of IPOs that have been oversubscribed by billions of dollars.

But it is not just local investors that are buying into the region’s booming construction sector.

Foreign investors are becoming more active in the region, and companies like Emaar are reacting to the emerging trend.The developer is also opening itself up to increased foreign investment with plans to increase the stake in the company that is open to foreign ownership from 20% to 49%.Chairman Mohamed Ali Alabbar, commented: “The issue reflects the company’s determination to expand locally and internationally.

“The increase in capital will allow it to aggressively pursue its expansion plans and enhance returns to shareholders.”While several quoted companies such as Emaar are considering rights issues to fund future growth, many more privately owned developers are seeking to take advantage of growing investor appetite by going public.

Almost without exception, every major property company to have gone public within the GCC since the beginning of this year has seen its newly launched shares oversubscribed many times over.

When the UAE emirate of Ras al Khaimah decided to sell shares in its real estate company earlier this year, it was confident that investors would snap up the full public offering of US $300 million.

In fact, so confident was Khaled Al Qubaisi of the National Bank of Abu Dhabi (the main subscription bank for the IPO), that he said he was ‘optimistic’ about the outcome, even before it closed on 12th April .But when the bank had finished counting several days later, Al Qubaisi was rather shocked to learn that the flotation had safely reached its US $300 million target, and had raised another US $17 billion on top.

It was an awesome performance and one that perhaps best illustrates the sheer weight of money in the market, which is being driven by record oil prices.

This phenomenon has been repeated serval times over in the last 12 months. Examples include Amlak Finance (33 times oversubscribed), Addar Properties (48 times oversubscribed) and Sorouh Real Estate (175 times oversubscribed).

But it is not just private Arab investors that are snapping up shares in quoted property companies throughout the Gulf.European funds and private investors are also acquiring direct and indirect property investments in the region in their droves.

Trowers & Hamlins partner, Nick Edmondes, said: “Dubai is a property hotspot, but Middle Eastern investors are not alone in funnelling cash into the Gulf’s property market.

“Many Western investors are moving capital out of their home markets and buying property in the Gulf. With Gulf economies developing rapidly and with domestic land and equity values at an all time high, money is being invested at home in the Gulf and generating high returns.”With more property IPOs lined up for the second half of this year, the property feeding frenzy is set to continue.

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