29 September 2007

Options on selling the family silver

The UAE Federal Government recently lowered the ceiling for commercial companies to float 30 per cent of their shares on the stock market.

The UAE has opened the door for family-owned companies to float some of their stock in a public offering without relinquishing too much control, but will they take the plunge?

The UAE Federal Government recently lowered the ceiling for commercial companies to float 30 per cent of their shares on the stock market, from the 55 per cent minimum earlier, a move widely seen as a tantalising offer for family-owned businesses to seek a public listing.

"This is a massive change. I think the government has changed the regulation knowing it will increase activity in the market and re-energise it," says Amer Halawi, securities director at The National Investor.

Halawi recently wrote a report on the UAE IPO market before the law was amended, identifying the 55 per cent law as one of the seven issues to be addressed to reactivate the country's IPO market. "Reducing the minimum float would encourage more businesses to come to market, thus participating in greater depth, breadth - and ultimately liquidity - for the market," he wrote in the report.

Khalaf Habtoor, founder of the Habtoor conglomerate, was the first to heed the call, stating on Arabic TV channel Al Arabiya that Al Habtoor Engineering could be the first jewel from his group on the IPO block by 2008.

This will be the first time a family enterprise offers a public sale in the UAE. Family concerns in other Gulf states such as Saudi Arabia, Bahrain and Kuwait have gone public in the past, with mixed results.

Fawaz Abdul Aziz Al Hokair in Saudi Arabia and Nass Corporation in Bahrain were among the half a dozen family company listings in the past few years, while Kuwait's Hayat Communications Company went for a private placement before a public listing on the Kuwait Stock Exchange in 2006.

Bare cupboard

The cupboard is even barer in the UAE. Tentatively, only Future Pipe Industries, owned by a Lebanese family group, Damas Jewellery and Damac Holding, have announced their intention of going public in a couple of years, according to the Zawya IPO Monitor.

"I hope the law will mean the listing of more quality businesses," says Deon Vernooy, head of asset management at Emirates Investment Services, who manages more than Dh5 billion in funds. "I would like to see major family businesses come on the market. But these processes take a long time, there might be a one or two-year lead time." "Although it is a step in the right direction, I am not sure if it's enough on its own to spur family businesses into action."

Going public carries with it a different set of disciplines and some family businesses may not be comfortable in answering shareholders, adhering to much stricter transparency, or even handling the media attention.

Interestingly, the Dubai International Financial Exchange (DIFX), regulated by the Dubai Financial Services Authority, offers 25 per cent flotation, but there has hardly been a queue for listing at the exchange, as companies have to comply with much stricter rules. When launched in 2005, one of the exchange's mandates was to encourage regional family concerns to list. But the DIFX ticker boasts of only one family company, although DIFX sources say as many as 30 family businesses in the region are "seriously" considering an IPO.

There also appears a resistance to relinquish control, with some such as Husain Sajwani, head of Damac Holding, arguing that the flotation ratio should have been even lower to 20 per cent.

But that could make the stock illiquid. "We need to think of issues such as liquidity. If the stock does not trade and does not represent a substantial portion of absolute market capitalisation, the listing becomes meaningless. Also, investors will punish the stock if the company continues to be run as a private concern."

There are other things to consider as well. Lack of book-building during a company's IPO process could also impact the valuation and returns to founders who have spent years building their empires. At the moment, the Ministry of Economy determines both the price and the timing of the IPO.

Price ranges

"We are advocates of price ranges and market consultation, which allow the issuer to test the market for a given price," says Halawi. Such a practice often results in adjustments to price ranges (up or down, either within or outside a range). It also allows the issuer to gain a certain degree of confidence, and to minimise mis-pricing mistakes.

Yasmina Chraibi, senior financial analyst at Zawya.com, says that the Ministry of Economy should not outsource the valuation of a company to one of the Big Four accounting firms.

"Globally, this is done by investment banks, or lead managers, who are better equipped to value firms," she says.

Halawi argues that some UAE companies may have gone for a listing in the past few years for entirely the wrong reason.

"For many companies, public flotation is seen as get-rich-quick scheme," says Halawi.

"We suspect that the unbelievable amounts raised in a very short period of time have encouraged UAE business-owners to get into 'IPO mode', regardless of the fundamental need to raise money - in other words, going public just to get rich, or richer."

Perhaps, it's the mindset, more than the laws, that need to change.-(GulfNews)

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Lebanon Time-Line

Introducing Lebanon

Coolly combining the ancient with the ultramodern, Lebanon is one of the most captivating countries in the Middle East. From the Phoenician findings of Tyre (Sour) and Roman Baalbek's tremendous temple to Beirut's BO18 and Bernard Khoury's modern movement, the span of Lebanon's history leaves many visitors spinning. Tripoli (Trablous) is considered to have the best souk in the country and is famous for its Mamluk architecture. It's well equipped with a taste of modernity as well; Jounieh, formerly a sleepy fishing village, is a town alive with nightclubs and glitz on summer weekends.

With all of the Middle East's best bits - warm and welcoming people, mind-blowing history and considerable culture, Lebanon is also the antithesis of many people's imaginings of the Middle East: mostly mountainous with skiing to boot, it's also laid-back, liberal and fun. While Beirut is fast becoming the region's party place, Lebanon is working hard to recapture its crown as the 'Paris of the Orient'.

The rejuvenation of the Beirut Central District is one of the largest, most ambitious urban redevelopment projects ever undertaken. Travellers will find the excitement surrounding this and other developments and designs palpable - and very infectious.

Finally, Lebanon's cuisine is considered the richest of the region. From hummus to hommard (lobster), you'll dine like a king. With legendary sights, hospitality, food and nightlife, what more could a traveller want?

Introducing Beirut

What Beirut is depends entirely on where you are. If you’re gazing at the beautifully reconstructed colonial relics and mosques of central Beirut’s Downtown, the city is a triumph of rejuvenation over disaster.

If you’re in the young, vibrant neighbourhoods of Gemmayzeh or Achrafiye, Beirut is about living for the moment: partying, eating and drinking as if there’s no tomorrow. If you’re standing in the shadow of buildings still peppered with bullet holes, or walking the Green Line with an elderly resident, it’s a city of bitter memories and a dark past. If you’re with Beirut’s Armenians, Beirut is about salvation; if you’re with its handful of Jews, it’s about hiding your true identity. Here you’ll find the freest gay scene in the Arab Middle East, yet homosexuality is still illegal. If you’re in one of Beirut’s southern refugee camps, Beirut is about sorrow and displacement; other southern districts are considered a base for paramilitary operations and south Beirut is home to infamous Hezbollah secretary general, Hassan Nasrallah. For some, it’s a city of fear; for others, freedom.

Throw in maniacal drivers, air pollution from old, smoking Mercedes taxis, world-class universities, bars to rival Soho and coffee thicker than mud, political demonstrations, and swimming pools awash with more silicone than Miami. Add people so friendly you’ll swear it can’t be true, a political situation existing on a knife-edge, internationally renowned museums and gallery openings that continue in the face of explosions, assassinations and power cuts, and you’ll find that you’ve never experienced a capital city quite so alive and kicking – despite its frequent volatility.