The United Arab Emirates has finally decided to go ahead with a new commercial law that would allow family owned firms to go public and list on the country’s two stock exchanges by floating between 30% and 50% of their shares in an IPO, rather than the current requirements of 55%. The move by the UAE has received high accolades and analysts say this will encourage more family businesses to raise capital by going public. In the past, family businesses were reluctant to use this route because most did not want to give up controlling stakes in their companies. The new law will allow them to maintain majority control while giving them access to liquidity on the stock markets.
The timing for this is very important at this juncture as the IPO market in the region continues to experience substantial upward movement and new records are expected to be set at the end of 2008. Coupled with the region’s bull markets which are being driven in part by a growing middle class seeking new investment opportunities, investors are expected to make the best of these changes by buying bargain-priced shares of undiscovered “family” companies.
For the month of June the IPO market continued to experience new announcements, the biggest being that a unit of Kuwait’s Global Investment House known as Global MENA Financial Assets Ltd. said it seeks to raise over $500 million by floating some of its shares on the London Stock Exchange. The company said the move is part of its strategy to “tap economic growth in the Middle East.” The sale is expected to take place around July 18 and the shares would be sold to “institutional and professional” investors in the GCC.
In the UAE, Drake & Scull International said it plans to raise $326 million in an IPO by offering 55% of its shares to the public. HSBC and Al Mal are the joint lead managers and the IPO will run from July 1 to July 10. Drake & Scull will offer 55%, or 1.198 billion shares, at AED1 ($0.27) each. Meanwhile, the Abu Dhabi-based investment and merchant banking firm, The National Investor, said it is seeking to borrow $400 million and plans an IPO of 30% of the company’s shares soon after.
In Saudi Arabia, Abdul Ghani El Ajou and Sons Holding Trading Company said it will float about 30% of its shares in early 2009. The company did not provide details about the amount it seeks to raise but analyst say the multiline Conglomerate is set to generate a lot of interest when the IPO is launched. Moving to Kuwait, the oil and gas firm, Kuwait Energy, said it plans to offer 25% of its shares to the public in early 2009. The company did not provide details as to the value of the offering but said that it plans to list on the London stock exchange by mid-2009.
In the Levant, the Amman-based Al Israa for Islamic Finance and Investment said it plans to offer 25% of its shares to the public in an effort to raise around $10 million for administrative restructuring. The IPO launched on June 26 will close on July 9.
Observers say the concept of family-owned and joint stock businesses, which have been the model of choice used by the global community for the past few hundred years, has proved itself to be an efficient and dynamic mechanism for wealth creation and capital raising, and that the global financial markets such as Saudi Stock Exchange, Dubai Financial Market and DIFX are the best ways for corporations to raise essential investment capital. According to a recent survey more than half of the family businesses in the GCC agreed that going public is essential for “their survival.” The remaining 50% will now be even more encouraged to choose going public when the adoption of the new laws take place.