By: Mahmoud Gamal  

Dubai – Mubasher: The reduction of the offered stake in Emaar Development has caused a great deal of controversy among investors in the UAE’s two markets.

The modification of the offered stake to 20% from 30% will negatively affect investor demand for Emaar Development’s shares when offered for subscription, analysts told Mubasher.

On Sunday, Emaar Properties announced, in a filing to the Dubai Financial Market (DFM), that it will sell 20% of its unit, Emaar Development, in an initial public offering (IPO) instead of the previously forecasted 30%.

What is odd is that the company did not clarify the reasons behind the decision, which perplexed investors, who were counting heavily on the IPO to yield huge profits after a long absence of IPOs. Emaar Malls was the last IPO launched in 2014 on the DFM.

The reduction of Emaar Development’s IPO has weighed down the mother company’s stock at Monday’s close, said Fadi El-Ghattis, MindCraft Consultants’ CEO, noting that this will dwindle the expected dividends from the IPO.

Earlier on Monday, Emaar Properties’ stock shed 2.6% for the second successive session on the DFM.

Ubhar Capital forecast that Emaar Properties’ shareholders will receive AED 6.58 billion in dividends, while Bahrain’s Securities and Investment Company (SICO) expected the dividend per share to range between AED 0.9 and AED 1.2.

Earlier in October, Emaar Properties unveiled that its subsidiary Emaar Development was to distribute $1.7 billion in dividends among shareholders over the next three years ending December 2020.

Emaar Development’s IPO stake cut may force investors, who were expecting a higher IPO share, to reduce their investments in the parent company, said Tariq Qaqish, deputy head of asset management at Menacorp.

The evaluation of Emaar Development will be the same, hence the stock’s price will not be affected, Qaqish added.

Emaar Properties will reevaluate Emaar Development’s assets in the coming period after the reduction of latter’s offered stake, which will boost the former’s stock price, Qaqish explained.

Emaar Properties stated on Sunday that the total value of Emaar Development’s assets has reached AED 35.6 billion, according to an independent evaluation made by Jones Lang LaSalle (JLL).

Emaar also announced that the modified net value of its unit’s assets was AED 24.1 billion by the end of September.

Unprecedented opportunity

Despite the controversy regarding the IPO, Emaar Properties’ chairman Mohamed Alabbar stressed that listing Emaar Development will offer potential investors an unprecedented opportunity to participate in a specialised real estate developer “offering strong and stable cash flows and an attractive dividend yield”.   

The retail tranche is expected to be offered from 2 to 13 November 2017, while the eligible investment institutions’ tranche is projected be offered between 2 and 15 November, according to company statement. 

Emaar Properties will receive the IPO’s yield.

Emaar Development’s international coordinators for its IPO are: Bank of America Merrill Lynch, EFG Hermes, Emirates NBD Capital, First Abu Dhabi Bank (FAB), and Goldman Sachs International.

Emirates NBD Capital and FAB are the lead receiving banks, while Rothschild Bank will act as a financial consultant for the offering.

Emaar Development is expected to generate AED 18 billion in cash flow over the next four years, after delivering its underway projects.

Emaar’s real estate subsidiary has completed the sale of 80% of its underway units by the end of September “with an average gross profit margin of 41% for units sold, and an associated sales backlog of AED 41 billion,” according to Emaar Properties.

Translated by: Muhammad Abdulwakeel