DUBAI, 11 November 2006 — Dubai’s stock exchange will become the first in the Arab world to sell its own shares when a $435 million private and public offering opens tomorrow after the worst year for the region’s markets since 2001.
Dubai’s government is selling a 20 percent stake, or 1.6 billion existing shares, in the Dubai Financial Market (DFM), one of two bourses in the United Arab Emirates, the second-largest Arab economy.
The sale values the exchange at 8 billion dirhams ($2.18 billion).
Dubai’s government, like others in the world’s top oil exporting region, has used its bourse to give citizens a share of the prosperity created by a tripling of oil prices since 2001.
It reserved 200 million shares in the offering for UAE nationals. Another 720 million shares have been reserved for a private share sale to government employees, brokerages and listed companies.
The remaining 880 million shares will be sold in an initial public offering, with 680 million of them open to foreign investors.
“The offering provides Arab investors (with) an exposure to an exchange for the first time. Many investors are interested in this exposure,” said Mohamed el-Nabarawy, an assistant vice-president at investment bank Shuaa Capital. “This is a play on the DFM, a play on Dubai.”
The DFM will sell shares for 1.03 dirhams, indicating a price-to-earnings ratio of 10 times expected 2006 earnings - one of the cheapest stock market valuations in the world. The P/E of the London Stock Exchange is 26.25, while The NASDAQ Stock Market trades at a P/E of 49.20 and the NYSE Group Inc., owner of the New York Stock Exchange, at 50.10.
The DFM’s valuation is likely to fall into line with its peers once it lists.
IPO shares in Dubai have jumped between three and five times in value on their listing day, said Wadah el-Taha, head of strategy for Emaar Financial Services, a brokerage house. If DFM shares do the same, the P/E will shoot up to 31.
But as DFM’s main index dangles above a two-year low, analysts question whether the sale will garner interest among jittery investors.
In 2005 and the early part of 2006 regional IPOs were routinely oversubscribed several times.
