Silver linings to postponement of Massar Solutions IPO
There is some good news to be taken from the decision to postpone the Dh576 million initial public offering of Massar Solutions.
For one, the shareholders deserve some credit for calling it off when things were obviously not going well. It’s a big decision to admit in public that a mistake was made, and that is effectively what Taqa and Invest AD, the two controlling shareholders, have done.
Secondly, as yesterday’s statement recognised, even a stalled IPO process can generate some coverage and recognition. There is only one thing worse than being talked about, and that is not being talked about, as the sage said. Massar has considerably raised its profile as a result of the aborted IPO.
And third, the company, advisers and owners have gained a valuable lesson in the realities of a bear market, which they can put to good use if the IPO plan is ever revived.
Having said that, there are many factors that were outside their control that eventually led to the postponement.
Perhaps the biggest was the oil price, which was in freefall ever since Massar announced last month that it was planning the IPO. The postponement was the clearest sign that the price of crude is the overriding economic consideration in the region, capable of affecting business well outside the energy sector.
If anything, Massar, as a vehicle fleet management firm, is a clear beneficiary from low fuel prices. But the effect of falling oil on the capital markets outweighed any benefit that the company might get from a cheaper tank of petrol.
Remember, this was an IPO reserved exclusively for Emirati retail investors and institutions. Given Massar’s focus in Abu Dhabi, many potential investors would have been acutely aware of the oil price when they were weighing up whether or not to bid for the shares.
They were, by all accounts, impressed by Massar’s track record, management and strategy. Nor is there any sure sign that they thought it was too expensive, even though the final valuation was at the top end of a range drawn up by the advisers Ernst & Young. In short, they bought the Massar story.
But when the decision had to be made they could not bring themselves to buy the shares. The subscription period closed on January 25, when the oil markets were once again rattled by the death of King Abdullah of Saudi Arabia and while there were still doubts as to the continuity of oil pricing policy under his successor, King Salman.
Some experts also believe there was confusion on the part of investors as to the pricing of shares. This was the first IPO on the Abu Dhabi Securities Exchange for some time, and also the first that took advantage of new flexibility in listing requirements by the UAE regulator, the Securities and Commodities Authority.
The shares were priced at Dh2.40, as opposed to the simple par value of Dh1 that ADX investors were used to. Some investors could not understand why they were being asked for so much more, and were worried that there would be no room for a first day premium at that level.
These are needless concerns, really, addressed by recourse to nothing more complicated that a calculator. But it shows the risks of being too flexible, too quickly, outside investors’ comfort zone. In truth the Massar IPO was always a bit unconventional. It was billed as a “wealth distribution” mechanism by the two controlling shareholders, rather than a capital-raising exercise by the company.
Surely the job of a stock market is to raise resources for business expansion, rather than move cash from one group to another.
If, on the other hand, the two investors wanted to realise some profit from an excellent investment, they should have looked to another mechanism – a share sale to private equity or trade partners perhaps? This could yet turn out to be the course of action for Massar Solutions.
All in all, it’s a minor embarrassment for Massar, its shareholders and advisers. No great harm done. But the flaws should be sorted out for next time – oil price allowing, of course.
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