DP World IPO will be the making of the DIFX

The DIFX has been in the news over the summer with its holding company Borse Dubai acquiring stakes in the London Stock Exchange and the Nasdaq via a complex deal including the transfer of shares in the Scandinavian bourse OMX.

Now the DIFX is about to prove its worth on the global stage with the first privatisation of a major Dubai Government company, DP World, which is selling a 20 per cent stake. DP World is reckoned to be worth around $20bn, valuing the IPO stake at $4bn.

The share sale will be open to UAE and GCC nationals and UAE residents, along with international institutions. Applications open on November 4 and close on November 15 with the minimum subscription set at $6,000.

New-style IPO

However, this is not a traditional UAE-style IPO in which the share price is under-priced at Dhs1 by the ministry of economy, and with a likely huge oversubscription that ensures a massive profit for punters on day one of trading.

Rather, the IPO will be priced-to-market by the DIFX. Thus if demand is big the IPO price will go up, and vice-versa. Hence, local punters expecting to make a quick killing could be disappointed, although internationally a 10-20 per cent premium on IPOs is normal.

Part of the IPO issue is already taken up by the holders of the $3.5bn in convertible bonds issued by DP World in January 2006 who have the option to convert 30 per cent of these securities into the new share issue.

Indeed, from the DIFX perspective the big prize is not just to demonstrate a successful large IPO to world standards in Dubai. It is to show prospective companies that may want to list on the DIFX in the future that this is the way to get the best price for their shares.

In short, it will mean that the massive discounts of traditional Gulf IPOs are no longer necessary, and that companies can now obtain returns from IPOs much closer to the fair-value of their groups.

IPO floodgates

Provided the DP World IPO is successful - and this autumn looks a challenging period for global stock markets - then the flood gates are open for a new round of IPOs and these new primary issues will create a vibrant secondary market on the DIFX.

Certainly the local omens for success are good. The oil price is very high ensuring strong regional liquidity at a time when other global asset classes are looking unattractive. The Dubai economy continues to boom with neighbouring Abu Dhabi now also beginning to invest massive amounts into the UAE economy.

DP World can therefore argue that in terms of port handling the profit outlook in its home base of the UAE has never been stronger, while profits at home can compensate for any downturn in global trade - something that has not yet happened in any case.

See also:
Dubai strikes win-win deal with OMX and Nasdaq