Emaar Malls IPO: Is Dubai Back?

The forthcoming listing of Emaar Malls in Dubai will be a big moment for the Emirate, and not just because of the potential size of the deal. It raises the question: does this mean Dubai is back?

As I argue in Euromoney today, the news that Emaar Malls Group is to launch its IPO in Dubai "has several layers of significance. First, it's a big state-backed stock in a smallish market; second, it's a handy barometer of Dubai's revival; third, it has technical innovation; and fourth, it shows a rare level of faith in the liquidity of local markets over the usual procession to the London Stock Exchange."

Let's take each of those claims in turn so I can explain what I'm on about.

The first reason Emaar Malls matters is because of its size, and the size of the market within which it will make its appearance. Emaar Malls is part of Emaar Properties, which in many respects represents Dubai itself. It is state-controlled, it makes many of the extraordinary iconic trophy developments that Dubai is famous for and markets itself upon, and like Dubai itself, it has ambitions far beyond its own expanse of concrete-covered desert. You know Burj Khalifa, the tallest building in the world by about 300 clear metres? That's Emaar. Dubai Mall, the world's largest shopping mall? Also Emaar. It has $19 billion of assets. And, in Dubai perhaps more than any other city, the leading real estate developer is a powerful force indeed.

Emaar Properties was the first stock ever to be listed on the Dubai Financial Market, in 2000, and to this day it is about one third of the market cap of the exchange. Emaar Malls won't be that big, but it will be big enough to matter: it will probably raise about Dh5 billion, or US$1.36 billion, since the listing will be of at least 15% of the business (and potentially 25%) and its total net asset value is about $9 billion. Emaar collectively, therefore, is going to become even more dominant in the Dubai market, but at least it's an additional amount of liquidity. The UAE is a fragmented capital market with three separate exchanges, and the two truly domestic ones, Abu Dhabi's exchange and the DFM, only have about 70 companies each; DFM's entire market cap is just about $80 billion.

The second point: is it a sign of Dubai's revival? If you've been there lately you will probably sense that the revival is already well underway. Property prices are rising again - people are already worrying about bubbles - and you can see construction resuming where once the cranes were dormant. The dark days of 2009's near-default seem more distant and there is a sense of momentum once again, even though one can legitimately ask how many of the problems that arose in 2009 were ever dealt with, when so much of it was simply bailed out either by the central bank or Abu Dhabi's benevolence.

Nevertheless, IPOs always feel like a positive step, at least if they go well; they indicate that issuers and bankers believe that investors will have sufficient faith in a good corporate story to put their money into it and expect it to increase in value. That, by definition, is an indication of confidence, and where there's confidence, there's usually profitability.

The third point, about technical innovation, needn't bother us too much here: this will be the first DFM deal to combine retail and institutional investors in the same IPO.

And the fourth point gets to the question of how capital behaves in Dubai and the Middle East more broadly. Dubai has long sought to be a hub for international capital; that's what the DIFC is all about. But one can argue that all it's really done is create an avenue for capital to depart Dubai, through hundreds of small offices of big name fund managers who have only put sales people on the ground. If you look at some recent IPOs from the Gulf, like the hospital group Al Noor, they have not opted to raise capital locally but gone instead to the London Stock Exchange. So it's a big vote of confidence for the DFM, and local markets generally, when a big company lists at home.

As I also argue at more length in Euromoney today, this is part of a broader feelgood trend in Gulf capital markets (within which the Dubai stock market is one of the best performers this year). Saudi Arabia has pledged to open its - much bigger - markets to international capital (see Saudi Markets To Open To The World here and Saudi Arabia's Big Step Forward in Euromoney here ), and the UAE and Qatar have moved up to the MSCI Emerging Markets index. All these things require international fund managers to at least be aware of the Gulf markets, and increase the likelihood of them deploying capital in the region. Emaar Malls should be seen as part of that trend.
