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Gulf-based companies to launch property-related IPOs

Leading Gulf-based real estate companies look set to benefit from the surging global demand for regional property-related securities, with many set to launch local and overseas initial public offerings over the coming months.

Much of the coming action will be in the United Arab Emirates, where two real estate-related firms look set to sell shares to investors in the near future. Depa United Group, originally an Italian company but now based in Dubai, where it fits out five-star apartments, yachts and hotels for clients, hopes to raise at least $400 million during the first six months of 2008 via a simultaneous IPO on the Dubai International Financial Exchange and a sale of global depositary receipts on the London Stock Exchange, in order to provide additional liquidity, according to Depa spokesman Noor Sweid. Depa, which is perfectly based for its boutique, up-scale property services, is also planning about $500 million-worth of takeovers and purchases over the next two to three years, in countries including Algeria, Morocco, Syria and Yemen.

In recent years the company has secured the right to kit out many of the region’s most exciting new buildings. That includes a $163 million contract to furnish the $4.1 billion Burj Dubai structure, which is expected to top out at 818 metres on completion in December 2008, making it the world’s tallest building. Depa is owned 15% by Mohanna Sweid, its chief executive.

Faisal Hasan, head of research at Kuwait-based Global Investment House, believes there is enormous pent-up global demand for Middle-East focused property plays. "If you look at all of the countries in the GCC [Gulf Cooperation Council] there is huge global demand for real estate investments there – in Qatar, in Kuwait, in Saudi Arabia, in Dubai," he says.

Huge property demand

Total building projects under way in the Middle East – particularly the core areas around Saudi Arabia and the UAE – are estimated by Hasan at $1.3 trillion. Investors are also keen on the 8%-plus annual growth rate recorded by much of the region – much of it is either produced by, or recycled into, regional real estate. "There’s huge demand for property," Hasan adds. "Dubai is trying to become the world’s number one tourist destination, and there are huge commercial and residential housing projects under way in Saudi Arabia and Kuwait."

Gulf markets have also benefited hugely from an August 2007 regulation change, which allows UAE-based families and corporates to retain as much as 70% of their companies after listing. The previous maximum limit of 45% had put many regional corporates off an initial stock offering.

Al Qudra Holding, an Abu Dhabi-based investment holding company, has also been slowly inching to market. Having earlier teased the market with the promise of an initial stock sale in early 2007, Al Qudra’s chairman, Salah Salem Bin Omeir Al Shamsi, in October said that his company would sell roughly a quarter of its stock in a first-quarter 2008 IPO on the Abu Dhabi Securities Market. Shamsi declined to estimate the likely size of the stock offering but analysts reckon that it could raise between $600 million and $800 million. Al Qudra, which is also planning a major push into the Indian real estate market, posted a profit of Dh637 million ($173 million) for the full year 2006, up 202% from a year ago.

Gulf-based corporates are well on track to beat the $7.5 billion raised in IPOs in the whole of 2006, having raised $6.2 billion in the first nine months of this year; while in the first nine months of 2007, investors offered to buy 6.1 times more securities than were sold during IPOs by Gulf-based companies.

Just along the coast, Dubai-based property developer Nakheel is also considering an IPO. The company’s chief executive, Chris O’Donnell, said in October that a local stock sale was possible before the end of 2008. A company spokesman declined to comment on the potential sale, saying only that an announcement would be made at the right time.

Nakheel claims to have $30 billion-worth of projects pending. It raised more than $3.5 billion via an Islamic bond – the largest sukuk ever issued at the time – in 2006. The company is part of the Dubai World group that also owns Dubai Ports World, the world’s fourth-largest container ports handler, which in November raised $5 billion, making it the largest ever initial stock sale in the Middle East.

Global Investment’s Hasan says that of all the upcoming IPOs, Al Qudra’s is the most alluring. "That one will be very, very interesting – it’s probably the most exciting of the lot. They have a huge real estate portfolio that’s only going to get bigger."