IPO will unlock the true value of Emaar's development business in the UAE
Emaar Properties will “unlock the true value” of its development business through its upcoming initial public offering, according to its chairman Mohamed Alabbar.
The developer of the world’s tallest skyscraper is seeking to raise as much as $1.5 billion from the IPO of Emaar Development, which would be the country’s biggest share sale since 2014.
The Dubai-based company said last week that it plans to sell 800 million shares in Emaar Development at a price range of between 5.7 dirhams ($1.55) and 6.9 dirhams per share.
The IPO received bids for the entire amount within half a day of the issue. The close of subscription is on November 13.
In exclusive comments supplied to Arabian Business, Alabbar said the decision to offer 20 percent of the development unit was based on a belief that Emaar Development has reached a stage of maturity.
“It’s in a prime position to independently drive the development business here in the UAE, while Emaar Properties focuses on broader goals,” said Alabbar.
“For us, this is the crown jewel of our business and we want to see its value reflected in the market – as standalone and as well as in comparison to its direct peer group.”
He said the listing gives Emaar the ability to “unlock the true value of our development business in the UAE”.
“This is also about delivering value for our shareholders. There are people who have been holding Emaar shares since the company’s inception. They see the value we create as a long-term investment. So, we ultimately want to make sure we capture it,” he said.
Alabbar said the Emaar board is confident that investors will recognise the enormous potential that comes the company and its strong brand.
“Emaar has the track record that investors want to see. We currently have an $11 billion sales backlog and strong growth every quarter. Emaar Development has grown a lot, and it’s going to keep growing. Look around - Downtown Dubai, Arabian Ranches, Dubai Marina, Emirates Hills. We have a land bank of 170 million square foot GFA in prime locations, and a premium brand that people know and love,” he said.
Despite spearheading the development of master-planned lifestyle communities in Dubai, he said the market is not “accurately valuing our business and future growth prospects”.
“This is what is behind our vision for Emaar Development – to provide investors with the chance to invest in a business that is behind some of the most iconic projects in the UAE, and to take advantage of a ‘pure-play’ investment opportunity.
“Meanwhile, Emaar Properties will continue to be a diversified property holding company with investment opportunities including hospitality, international development, retail through its 85% stake in Emaar Malls, and UAE development, through the 80% stake in Emaar Development.”
Emaar’s objective is to unlock value in all of its core assets, bit-by-bit, when each reaches a stage of maturity, which is what happened when the company brought Emaar Malls to market three years ago. But the strategy doesn’t come without risks, he admitted.
“Of course, like any business in the property and construction sector in the UAE, we are exposed to macroeconomic factors in the UAE and the surrounding region that pose potential risks. Property markets across the developed world are by their very nature cyclical, experiencing peaks and troughs over time,” Alabbar said.
“We are fortunate to work on iconic projects and enjoy almost unprecedented demand for what we do. We are the number one build-to-sell operator in the UAE, and we aim to consolidate that position.”
Alabbar described the IPO as a “special milestone in the journey of Emaar” that marks “a new chapter of growth. He said the decision to list on Dubai Financial Market (DFM), over an international market like London or New York, allows Emaar to see its full potential.
“The DFM has also reached a point of maturity. Listing the development business on the same exchange as the parent company, we believe allows us to see its potential. That’s why we are not looking to list on an international market. Emaar Development is a Dubai story, and we believe it will appreciated by the local investor community,” he said.
Outlining the dividend policy of Emaar Properties and of Emaar Development, Alabbar said Emaar Properties’ shareholders will receive a special dividend from the IPO proceeds in January 2018, following the sale of their 20% stake in Emaar Development, subject to approval from the board of directors.
“We will share more information on this dividend plan closer to this date,” he said.
For Emaar Development shareholders, the board plans to distribute aggregate dividends of $1.7 billion over the next three years.
“Based on our IPO price range of AED 5.70-AED 6.90 per share, we expect a strong dividend yield for investors, especially when compared to our peer group. We are confident that this will provide investors with an appealing dividend proposition hard to find elsewhere in current markets,” he said.