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Abu Dhabi, UAESaturday 23 June 2018

Emaar to float just 20 per cent of real estate development subsidiary 

Shares plunge as retail investors rue lower special dividend payment

Emaar Development will open subscription for its IPO on November 2. Chris Ratcliffe / Bloomberg
Emaar Development will open subscription for its IPO on November 2. Chris Ratcliffe / Bloomberg

Emaar Properties, the UAE’s largest listed real estate company, scaled back plans for the listing of its real estate development arm, Emaar Development, sending its share price tumbling.

The developer on Sunday said it would list a 20 per cent stake of Emaar Development, after having said in June that it would offer up to 30 per cent. Retail investors can subscribe to the IPO from November 2-13, while qualified investors can subscribe from November 2 -15.

“The IPO of our UAE development business will allow pot­ential investors an opportu­nity to participate in a pure play UAE developer offering strong and stable cash flows and an attractive dividend yield,” said Mohamed Alabbar, the chairman of Emaar Properties. “Additionally, it offers the opportunity for Emaar Properties’ shareholders – including the UAE Government – to unlock the true value of our UAE development business.”

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The company did not comment on the lower stake sale.

News of the reduced sale was poorly received by investors anticipating the largest IPO on the Dubai stock exchange for several years, together with a special dividend payment for Emaar Properties shareholders.

Shares in Emaar Properties suffered their worst day for six months, closing down 2.1 per cent at Dh8.57.

“The issuance of a 20 per cent stake still equates to a sizeable Dh4.5 billion to Dh5bn offering on our estimates, compared to the approximately Dh5.8bn raised through the 15 per cent stake sale in Emaar Malls IPO,” said Ankit Gupta, vice president of investment management at Shuaa Capital.

“However, in the short term, the lower offering size does imply a potentially lower one-off special dividend, and thus may have disappointed some retail participants who were primarily focused on the dividends from the stake sale.”

“The market has priced in expectations of a Dh9bn plus special dividend over the past few months, which equates to Dh1.28 per share at 1x net asset value,” said Mohammad Kamal, an analyst at Arqaam Capital in Dubai.

“Assuming a [lower] net asset value of Dh23.8bn for the carve-out, this suggests IPO proceeds of Dh4.76bn or a special dividend payment of Dh0.66 per share.”

The listing of Emaar Development will be only the second IPO on the Dubai bourse since 2015. The DFM’s last IPO, insurance provider Orient UNB Takaful, was oversubscribed, but has yet to trade since its shares were listed in June.

Emaar Properties approved the IPO at its board meeting on Saturday, together with the transfer of “certain assets of the real estate development business of the company in the UAE” leading to the “conversion of Emaar Development into a public joint stock company”.

Dubai’s biggest listed developer said this summer that the funds raised would be “primarily distributed as dividends to Emaar’s shareholders”.

Emaar Malls was added to the DFM in 2014, with its Egyptian unit hitting the Cairo stock market the following year.

Emaar Development represents 20 per cent of the parent group’s assets. A public listing would clinch more funds for Emaar’s investment strategy.

Emaar Developments last week said that comprehensive income rose 32 per cent year-on-year to Dh2.1 billion for the first nine months of this year.

Revenue for the period rose 27 per cent to Dh6.5bn, with income from apartment sales rising 82 per cent.

Emaar Development, which has built 34,500 residential units since 2002, had more than 24,000 residential units under development at the end of September.

The subsidiary plans to launch about 50,400 units over the next five years with an average annual unit sales target of 10,000 units and a targeted overall gross profit margin of 40 per cent, the company said.

As of the end of September, the company sold 80 per cent of its units under development, which have an average gross profit margin of 41 per cent for sold units and a sales backlog of Dh41bn.