Dubai Utility Surges After Staging Year’s Second-Biggest IPO

(Bloomberg) -- Dubai Electricity & Water Authority jumped in its trading debut after raising $6.1 billion in the world’s second-biggest initial public offering this year, kickstarting a flurry of listings out of the city.

Shares of Dubai’s main utility soared as much as 23% before paring gains to 18% at 1:50 p.m. local time. The stock is trading at 2.92 dirhams compared with the offer price of 2.48 dirhams, which was the top end of the marketed range. The IPO valued DEWA at $33.8 billion.

The deal is the latest sign of feverish appetite for IPOs from the Gulf Arab region. DEWA almost tripled the size of its offer to an 18% stake in the face of huge demand, drawing orders worth $86 billion, excluding cornerstone and strategic investors.

“DEWA’s performance on the first day was expected given the strong oversubscription seen in the IPO,” said Faisal Hasan, chief investment officer at Al Mal Capital. “It is an attractive dividend play in the conservative utilities sector and will be part of portfolios as a defensive stock.”

Russia’s invasion of Ukraine has shuttered global IPO markets, already buckling under the weight of surging inflation and monetary policy tightening. The Middle East sidestepped the worst of the volatility, while soaring energy prices boosted cash reserves for local investors, who have been keen to put the money to work.

Citigroup Inc., Emirates NBD Bank and HSBC Holdings Plc managed DEWA’s share sale. Credit Suisse Group AG, EFG-Hermes, First Abu Dhabi Bank and Goldman Sachs Group Inc. are also involved as bookrunners. Moelis & Co. acted as an independent financial adviser.

DEWA priced its IPO for an implied dividend yield of 5%, a boon as rising interest rates make companies that provide steady income more attractive. The utility has a monopoly in the city and is seen as a way to gain exposure to Dubai’s economic and demographic growth potential.

The stock is an “ideal” play on Dubai’s economy, said Aarthi Chandrasekaran, a money manager at Shuaa Capital. Fast-tracked inclusions to the FTSE Russell and MSCI Inc. benchmarks “would possibly be something that everybody will be watching for,” she said in an interview with Bloomberg Television.

Catching Up

Dubai last year missed out on a flurry of share sales in the Middle East, led by neighboring Abu Dhabi and Saudi Arabia, and DEWA is only the emirate’s second IPO since 2017. Now, the government is planning to list nine more state companies, including Tecom Group, in an effort to boost trading activity.

Trading volume had picked up in Dubai over the last three months of 2021, hitting a four-year high in November after a string of initiatives to bolster activity, but momentum has since faltered. DEWA’s IPO is an important test of the market’s liquidity.

DEWA has also been a key part of the city’s transition to use cleaner forms of energy, potentially luring investors who focus on environmental, social and governance criteria. The oil-rich United Arab Emirates, of which Dubai is a part, has a 2050 net-zero target and Dubai has said solar energy will be a major contributor. The city is seeking to have all power generated from clean energy by 2050. 

“DEWA offers much-needed exposure to an ESG-conscious play in the GCC markets,” said Mohamed Fahmi, EFG Hermes’ co-head of investment banking. “It was a key pillar of the equity story and helped raise interest in the offering from ESG-oriented investors globally and regionally.”

(Updates share moves and adds EFG Hermes comments.)

More stories like this are available on bloomberg.com

©2022 Bloomberg L.P.