Emaar Properties shares surged by their highest daily amount for more than two years yesterday after the developer announced plans to float up to 30 per cent of its UAE real estate development business on the main Dubai bourse.
Emaar shares soared by 8.57 per cent during trading – their biggest daily hike since April 2015 – to close at Dh7.60 on the Dubai Financial Market (DFM).
The flotation is the third for a business unit of Emaar, Dubai’s biggest listed developer.
In a statement to the DFM, Emaar said that the funds raised would be "primarily distributed as dividends to Emaar’s shareholders", and that the company had made its decision as a result of an internal review of Emaar’s asset values.
"Over the years we have generated significant returns from our UAE real estate development business and it continues to be a strong driver of growth for the group," said the Emaar chairman Mohamed Alabbar.
"As Emaar’s other businesses have grown and expanded, we wanted to ensure that investors who value the UAE Real Estate Development business the most, the foundation of Emaar’s success, can do so directly. This will ensure that the value of this business is properly recognised, thereby enhancing value for all Emaar shareholders."
Emaar said that real estate sales at its development business in UAE more than tripled to Dh14.4 billion in 2016 from Dh4.2bn in 2012. In the first five months of this year, the business recorded sales of Dh9.7bn, up by 24 per cent on the same period in 2016.
At the end of last month, the division’s total backlog – representing the value of properties which had been sold but related revenues had not been recognised – was Dh40bn.
Emaar has been engaged in plans to spin off various parts of its business in the past five years. In 2014, the company floated its Emaar Malls business on the DFM and in 2015 its Egyptian unit debuted on the Cairo stock market.
The company had also been widely expected to spin off its hospitality business. However, with room rates across the city continuing to fall and thousands of new hotel rooms due to be built ahead of Expo 2020, the developer is thought to have postponed these plans.
The news of Emaar’s plans to float its property development arm comes amid a market slump, following two years of price declines and an economic downturn caused by lower oil prices.
However, by selling down a stake in its crown jewel unit, Emaar would be able to quickly raise money for further investment as well as boosting its own share price, according to Sanyalak Manibhandu, head of research at NBAD Securities.
"With the market already setting a price for Emaar Malls, in which Emaar Properties has an 85 per cent stake, a market determined price for the UAE property development unit would help boost the market value for Emaar Properties," said Mr Manibhandu. "Selling down the UAE property development [unit] is equivalent to realising today the cash flow that would otherwise be realised over a number of years."
Mr Manibhandu added that an initial public offering of Emaar’s hospitality unit would be "unlikely to generate the sort of returns Emaar management is looking for in the present market". He said the company "might revive the hospitality unit IPO at a future date when market conditions for hotels in Dubai improve".
lbarnard@thenational.ae
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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