DUBAI, 27 December 2007 — The United Arab Emirates said future initial public offerings (IPOs) could be priced through a book-building process for the first time, a move that may encourage more family-owned businesses to sell shares.
IPOs in the second-largest Arab economy have traditionally been set at a fixed price of 1 dirham ($0.272) per share and may include a premium or service fee.
The conservative pricing method has often borne little relation to demand and the sales are usually oversubscribed, with shares surging when they start trading.
The UAE stock market regulator, the Securities and Commodities Authority, would have the right to decide on how future IPOs would be priced, it said after a board meeting on Tuesday, according to state news agency WAM.
“The authority would have the capacity to set the method of pricing securities in IPOs whether through underwriting or book building or any other way that might emerge in the future,” the regulator said.
Book-building allows companies to offer a price range to test investors’ appetite and determine the IPO price only after roadshows shortly before the debut.
Hoping to encourage family-owned business to list their shares on the country’s stock exchanges, the government reformed IPO rules in August to allow families to retain up to 70 percent of firms they put up for sale, up from 45 percent earlier.
“A lot of companies don’t want to sell shares at par value,” said Hamood Al-Yasi, general manager at Emirates International Securities. “Book building will allow them to sell shares at a premium, which would encourage big family businesses to go public,” he said.
Port operator DP World raised almost $5 billion in November in the Middle East’s largest IPO, selling shares at $1.30 each, at the upper end of its price range and 13 times its par value, Yasi said.
Some of the UAE’s largest unlisted businesses, such as Dubai’s Al-Futtaim Group, are family owned, and the Dubai Financial Market and Abu Dhabi Securities Market are dominated by real estate and banking stocks.
Abu Dhabi’s Al-Fahim said it would consider selling shares in its hotel and real estate units under the new law, and Dubai developer Damac Properties also said it planned to go public after the share ownership law was announced.
The UAE move mirrors efforts in Saudi Arabia to reform IPO rules and encourage greater institutional investment in the largest Arab stock market.
Public offerings, including Saudi Prince Alwaleed’s Kingdom Holding Co, introduced book-building techniques for the first time this year.
Investors routinely piled into UAE IPOs during a stock market rally in 2005 when IPOs were on average 73 times oversubscribed, according to estimates of private equity firm Gulf Capital.
This year, the IPO of Dubai real estate developer Deyaar was 13 times oversubscribed.
The UAE regulator took over supervision powers of IPOs from the Ministry of Economy in February.
