Ali Yasin: Iran War Forces GCC Firms to Rethink IPOs

just want to start asking for your take on that uh MR Properties plan to uh take its construction arm private again. Uh what does it mean?

Yeah, I I think it took the market by surprise the announcement. Uh usually when companies they decide to take some some public entities back and it's I think it's more of a defensive kind of move whereby you're consolidating your assets into the mother company, we're trying to put your uh cash flow, cash cash pot all together and probably have have a better have better I think be in a better position in future in order to handle maybe some uh challenges that may be coming or preparing yourself for some other kind of activity in future.

Can we look at this story in isolation though? Because, you know, I just mentioned in the introduction there, now Maczan is looking at uh going private as well or at least having a conversation about it. So that would be uh, what have we got? Four, if that happens, take private this year in the UAE. So is this idiosyncratic or is it starting to feel like a trend to you?

No. I I think I think we I can I can understand why people could think that this is happening, you know, this is been taking some four four in a row as you said, but I think it's more of in my view, it's more of selfish decisions by each company on on its own, looking at its own benefit going forward. Emaar in particular is, you know, one of the problems that it had when it came and went spun off Emaar Development and before that Emaar Malls before he took it private again, was they believe the market was not valuing the stock and the company well. So by splitting them up, they created this kind of value. However, in the last two years, what you will notice is that the PE for Emaar development and is is been like in the range of five to six times, which is really low compared what is the average of the PE of the DFM uh at about at the time I think it was in the range of 12 10 to 12. So therefore, I think the the company probably believes that it has let's say took all that there is that could be beneficial to to it from spinning it off. The price now is being talked about, the valuation is being talked about, it's like about 10 times of what it was when it was sold in 2017. Um the question today is that this as for the company could be the right decision for them. Uh but for the investors as you said, we are towards the end of the year, usually you expect a dividend, MR development dividend is 1 per share, usually get that in Feb. Will you by joining this kind of move uh taking this offer, are you giving away that? So the 15 suddenly starts to look like 14. The the other thing I think to also uh think about is the effect on the market. DFM, Emaar development is one of the uh very active stocks. It's it ranges in terms of 7 to 8% of trading per year of the total trading value of the DFM. So taking this off, will you be losing that traded value. And the market cap also, of course, because you're not by joining them together, you're not going to add the market cap of both. One will take over the other one. So let's see how this all this has a lot of wide spread effects on the DFM market. I think as a market you wouldn't be enjoying this kind of decision, but these decisions are company-centric and they're taking for things I think that they are on the specific to MR in this case or the other companies that uh that were taken earlier.

Mm. Okay, so company specific reasons as you say, but you know, as you also can see as an investor you might look at this and think something else is going on. And I mean if you we look at the other end of this, uh the IPO market has been pretty weak in the UAE for the past two years. How would investors be viewing that and why is that happening?

Paul, I don't blame the investors and the slowdown in the in the IPO market. We are going the region has gone through a very uh shocking event starting the war between Iran and the US in March that was not expected that had repercussions physically on on many of the GCC countries and therefore it has affected the sentiment of investors and therefore their escape has dropped immensely and that means that any company that wants to come as an IPO has to come at a very discounted uh PE. We saw uh Dubai investment holding come to the market still still decided the price at 112, but the PE uh is is a bit higher than what the market's real estate is. So let's see how does this list in the market.

I'm not surprised of that as an appetite and I think what's happening today is forcing many of the companies, private and public to kind of look back at their business model and refocus their businesses towards the coming three to five years rather than the past three to five years when these companies were taken public. The focus today in terms of industries, in terms of expenditure, it's more on like infrastructure and transportation, finding new supply lines, cyber security, all of these are these things were not at the top of the interest of the markets or represented in the markets in the GCC. Now you're going to see more of those may become, but this will take some time of re balancing and reconstruction uh and reorganization for those companies.

So I I I'd say I look I look cautiously optimistic for the coming year. hopefully, especially if we get this political view politics lowered down that we see better activity, but the PE's in the market are still depressed in my view and that will only improve when we see kind of going back to the uh status prior to March. I think going back and then we can expect market volumes to to improve and then sentiment to improve by investors.

Uh Muhammad, just briefly, we're we're running a little low on time, but you did mention buybacks earlier. I'm just wondering to what degree, you know, that's shrinking an already small free float and you know, um minority investors being adequately protected, you know, when you consider controlling owners are just dominating the register like this.

Sure. I mean these companies when they came to the market, I development was still owned 80% by MR. so everybody knew what they're getting there. Many of the companies that came in IPO, the majority shareholder who sold continued to continue to have between 80 and 70. It's it's a sign actually of confidence. Yes, we would like to see increased depth in the market by more IPOs to come, but the conditions have to be right and the pricing has to be right and I think it has to be a slow and gradual kind of movement rather than just immediately. Till that happens, you will see companies going to private investors because there is activity in that market and there is good value and they may try to go for that for the meantime in the meantime until public markets are back to their general vitality.