Saudis flock to UAE for Dana Gas IPO

Astonishing scenes on Day One of the Dana Gas IPO brought chaos to UAE banks with would-be subscribers falling over themselves to pick up application forms. All flights from Saudi Arabia to the UAE have been booked solid for days and 33,000 people crossed the border in the past four days, according to local officials.

Armed with suitcases full of cash many of these people queued outside the banks to subscribe to the IPO. Bankers pointed out that all other IPOs in the UAE had been put on hold until the new Company Law was issued, causing pent-up demand.

But is this not more like the madness of crowds? How many of these people have even bothered to enquire what Dana Gas does, or will do?

If they knew that they were investing in a new gas pipeline from Iran, due to open later this year would that ease their fervor? Probably not, but surely anyone would have to admit that this is a venture with an element of risk.

However, the clearest reason for laughing at investors who behave in this fashion is that their enthusiasm and greed is self-defeating. For having so many applications for an IPO in which nobody can loose means that each participant will get very few shares in the final allocation.

Given the expense of traveling to the UAE, the time taken and inconvenience, it is very doubtful whether the quest for instant riches will be anything more than a disappointment.

DIFX the way forward

This is also the latest sign that the new Dubai International Financial Exchange, opening on September 26, comes not a moment too soon. It will offer a completely different framework for the flotation of companies - which will mean that shares in IPOs are issued at something much closer to their fair value, unlike the present bean-feast where all IPO shares cost one dirham whatever the underlying value of the company.

That the UAE badly needs a modern, transparent, and efficient way of launching IPOs in start-up and existing companies is clearly illustrated by the farcical scenes this week. There just has to be a better way, and the DIFX is the way forward.

The Dana Gas IPO will almost certainly prove to be the last of the old-style UAE IPOs. For under the new Company Law it is expected that the present family owners will be able to maintain control of a company that is floated, and it is hard to imagine the original shareholders allowing their company to be under-priced in an IPO even on the local stock exchanges.