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Primary market issues hold massive potential

“The market is flush with liquidity and the cost of funds are phenomenally low. We have witnessed unprecedented growth in the secondary market until the end of September indicating that people are optimistic about the market prospects,” said Shehab M Gargash, Director of Daman Securities, Dubai.

The primary market trends, according to the stock market analysts, are very much in favour of more primary issues. “There is big demand for IPOs from the investing public. The recent successful public issues such as Amlak, Finance House and and Arab Tech hints at the big appetite for good quality issues,” said an investment banker.

Mohammed Ali Yassin, director general of UAE Securities and Bonds Centre said UAE's IPO market received a boost over the past few months from increased stock market transactions coupled with a rise in investments from foreign and national investors.

The establishment of new companies including Dar Al Tamweel, Al Takaful, and Aman and the conversion of existing companies to joint stock as in the case of Amlak underscore the vibrant growth of the primary market.

A growing investor enthusiasm in primary and secondary markets has led to an increase in the number of joint stock companies. As a result, while the investor base got expanded several new players entered the scene.

He pointed out that Arab Technical Construction Company (ARABTEC) was a case in point of companies going public. Its IPO of 220 million shares with a value of Dh16 billion — Dh10 billion from the local market and Dh6 billion from foreign investments — is an indicator to other companies to adapt to equity market culture to finance their growth.

He said there were indications that several new companies are planning IPOs for a combined value of Dh3 billion by the end of this year.

While Amlak issue was oversubscribed 33 times, Finance House issue was oversubscribed by 75 times and the latest IPO, ARABTEC was oversubscribed by 74 times. “The emerging equity culture and the growing appetite for stock market investments is evident from the successful launches of Sukuk issues and rights issues. The investors are waiting for more companies to offer shares,” he said.

The obvious question on every one's mind is — when are more IPOs going to hit the market. “The big wave of IPOs should come from the family-owned businesses and it looks like that many of them are not quiet ready yet for flotation. Currently, there are a number of private equity deals happening and when these investors opt for exit, public issues will be an option,” Gargash said.

Relatively small number of IPOs were floated in the Gulf markets despite the excellent performance of the of the AGCC stock markets during the past nine months. Merchant bankers, brokers and investing community have revealed that the primary market in the UAE has a few 'legacy' issues and procedural issues which is hindering the fast growth of equity culture in the country.

First of all, there is the lack of a capital market culture among private companies. Conservative managements who prefer to depend on commercial borrowings from banks manage a vast majority of companies and their internal sources accruals for their capital needs.

The long drawn process of converting a company into a publicly listed and traded company has discouraged many to go in for the capital market option.