Money talks

who were leveraged up to their eyeballs with multi-million dollar credit lines from the friendly neighbourhood banker.

It was the new Arabian gold rush, symbolised by the Dana Gas IPO, a feeding frenzy that saw countless GCC investors fly into DXB waving application forms and storming the bank branches of Nasser Square in their eagerness to bid for a pipeline deal about whose fine print nobody knew or cared. It was enough that Dana Gas’s shareholders included Saudi princes, big hammour bankers and financiers, brand name Dubai merchants, the big time market punters of the GCC. While acting as receiving agents, banks laughed all the way to the, well, bank as the dumb money routinely bid 100, 200 and 500 times the size of the IPO in its earness to own a piece of paper El Dorado.

Banks made a killing, a Pharoah’s ransom in the float of untold billions sloshing around the banking system as Joe and Jane Habibi concluded that filling out an application form guaranteed IPO profits up the wazoo. It was not unusual for banks to make more money on the float from the public’s subscription funds than the equity capital the issuer raised in the first place. Things went from the sublime to the ridiculous when the Abu Dhabi property fund Addar was oversubscribed 700 times, a tsunami of money whose value was $100 billion, almost the entire GDP of a petrodollar state, yes you guessed it, like UAE.

Irrational exuberance was the order of the day as UAE shares zoomed to the moon. The DFM gushed money and mesmerised the dreams of millions borrowed to the hilt from banks to bid IPOs and punt on the handful of listed companies with enough free float to buy and sell in size. So we saw surreal, Alice in Wonderland scenes in the capital markets reminiscent of earlier asset bubbles in world finance tulipmania in Rembrandt’s Amsterdam, the South Sea bubble, Kuwait’s 90 billion Souk Al-Manakh debacle (history records that, in 1981, Kuwait’s market cap was exceeded by only the US and Japan), the Internet dot com scams, the Nikkei Dow death spiral in Tokyo. It was go-go finance, all smoke and mirrors, the Greater Fool Theory masquerading as financial innovation as private equity firms and corporate promoters used the IPO as a symbol of instant riches. The lucky souls who bought Amlak at its IPO did not double or triple but made 10 times their money. Emaar, the property colossus that is 70 per cent of the UAE market turnover once boasted a market cap of $45 billion, more than Stan Chart and Deutsche Bank. Banks that were mundane retail franchises dukeing it out for market share for the privilege to sell exorbitantly priced credit cards and auto loans in a hypercompetitive market with a mere 1.5 million consumer traded at the highest price/book values on the planet, valuations unthinkable on Wall Street and the City of London. This was wheeler dealer heaven and the speculation of Dubai were a bungee-jump on the abyss of ruin. Risk turns to run when punters do not know how to hedge it, deflect it or even identify it. The trend is your friend until the trend comes to an end, as it did on the DFM with a vengeance since October last year was El Torro now is Papa Bear. If greed and fear move markets, the big chill is here.