Shipper bets Gulf Arab IPO appetite unhurt

DUBAI — Dubai-based shipping company Gulf Navigation Company yesterday launched a $248 million initial public offering, betting that a stock market slump has not diminished the region’s appetite for new share issues.

By (Reuters)

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Published: Tue 25 Jul 2006, 3:42 PM

Last updated: Sat 4 Apr 2015, 1:08 PM

Gulf Navigation, which transports crude oil and chemicals, is offering investors in the Gulf Arab region a 55 per cent stake, or 910 million new shares at Dh1 ($0.272) each.

The IPO is the first by a company in the United Arab Emirates since March, when Gulf markets tumbled as crisis of confidence gripped investors across the world’s biggest oil exporting region.

The stock markets have yet to recover their poise, with Dubai’s main index down almost 60 per cent this year, but lead manager Shuaa Capital said it was expecting strong demand for the IPO.

“The quality of the company and the pre-IPO feedback we got from (investors) means we are very comfortable with bringing this company to market now,” said Rody Yared of Shuaa Capital.

Demand for Gulf IPOs, especially those in the UAE, has traditionally been strong, primarily because investors were virtually guaranteed a quick profit when the shares started trading.

During the years of the regional stock market boom shares in Gulf IPOs rose on average by 300 per cent on their debut, because governments insisted on conservative valuations and the offer price is determined by regulation rather than a process of book building. Returns have become less certain after the markets crashed and shares in mortgage lender Tamweel debuted at three times the IPO price this month, but tumbled soon after as leveraged investors bailed out to book what gains they could.

Enough liquidity: Tamweel’s IPO in March had been more than 500 times oversubscribed. “I think there is still enough liquidity and IPOs are viewed as a quick way to make money in this region,” said one Dubai-based fund manager who asked not to be named.

“The secondary market is lacklustre but the primary market for IPOs is pretty robust.”

Saudi Arabian developer Emaar Economic City launched a $680 million initial public offering on Saturday, testing investor appetite in the kingdom for the first time since the stock market crash.

Shuaa and Gulf Navigation say their IPO gives investors an opportunity to tap into rapid growth in the energy and chemicals transport business, driven by mainly by rising global oil demand.

Chief Executive Ghazi Al Ibrahim told Reuters on Sunday that Gulf Navigation planned to spend $1.01 billion to buy 13 vessels to transport crude oil and chemicals. The purchases would be financed by the proceeds of the IPO and by borrowing.

Gulf Navigation has a fleet of 11 ships with seven on order and Ibrahim said the company wanted to expand into shipping liquefied natural gas as well. Yared said investments of the IPO cash would not start earning revenue until 2007. Gulf Navigation would be priced at a multiple of 23.5 times expected 2006 earnings, according to Shuaa. The Dubai stock market, where the shares will be listed later this year, trades on an average multiple of around 13 to 14 times.

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