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ReMarkable performance by CAPM Investment.

Summary: CAPM Investment acted as financial advisor and lead manager to the first IPO on the Dubai Financial Market in almost six years

The gross amount raised by the initial public offering (IPO) of shares in Marka was AED 10.354 billion, or a 36.5x oversubscription, to the 275 million shares on offer to the public. By any stretch of the imagination that is a remarkable performance indeed, demonstrating, if last year's doubling in share values had not already done so, the return of both confidence and liquidity to the Dubai Financial Market (DFM) after the lean years in the wake of the global financial crisis.

Marka issued a total of 500 million shares, of which the company's founders subscribed to 45 per cent or 225 million. Marka is the UAE's first public shareholding company that will operate in the retail and F&B (food and beverage) sectors in the country. Business Monitor International has estimated that the UAE retail sector could be worth almost $348 billion by 2018, growing at an average rate of 10.4 per cent a year.

Among a number of 'firsts', Marka is not only the first IPO for almost six years in the UAE, it is also the first 'greenfield' IPO in the region for several years [a 'greenfield' being a start- up with no assets that is not a conversion from a different corporate type; it is a company established to purchase and exploit assets].

However, according to Mahdi Mattar, Chief Executive Officer of CAPM Investment, there is more to the success of the Marka IPO. "Why did Marka work? It is not just because it is in an attractive sector and there is liquidity in the market right now. Anybody can do a decent business plan and take it to investors to raise money. The fact is that Marka had a very strong Founders' Committee: five individuals extremely well-known in the UAE and the GCC, well-respected and trusted by investors! It was a who's who of the businessmen of the UAE. This 'trust' element is extremely important and a major factor why we were able to get such oversubscription for the Marka IPO.

"We were pleased for two reasons, one because it's the first IPO on the DFM since the crisis and, two, it's the first IPO of its type, of a retail company in the UAE, operating in the UAE and listed on a UAE exchange."

Had Marka been sitting on the sidelines for some time, waiting for the market to turn?

"Not really, but the Founders' Committee had this idea in mind for the past two or three years. We started preparing for the IPO almost a year ago, going to ESCA (Emirates Securities & Commodities Authority) asking if we could go public. From getting the no objection letter from ESCA to going public took around 12-13 months. It was a long process."

Was the lengthy process something specific to Marka?

"It was down to a human factor. Investment bankers, receiving banks, auditors and other parties had all, to a certain extent, forgotten how to do an IPO! Some the receiving banks had fired their teams five years ago. We had to teach most of the third parties about IPOs and how they are done. Now, however, our next IPO should be only three to four months between getting approval from ESCA and coming to the market."

Marka was 36.5x oversubscribed, that surely demonstrates a huge appetite for equity?

"There are two appetites on display; one is the appetite to invest in a growing business sector in the UAE, retail and F&B. It is almost impossible for ordinary investors to gain exposure to this sector. The big names, like Alshaya and Chalhoub Group, have made massive investments and you need to be one of them to invest. Marka provided the first vehicle for retail individual investors and family offices to invest in this field.

"Second, yes there is a general appetite for IPOs... in any sector that allows a UAE or a GCC investor to diversify. Look at the market, the stocks currently available are mostly construction or financial services. Any new idea or any new company that allows an investor to diversify in a 'sexy' sector is definitely an easy IPO."

In the wake of the success of the Marka IPO, how is CAPM Investment's pipeline?

"Since we announced the Marka IPO, the pipeline has been growing exponentially on a weekly basis and after we closed the IPO and announced it was 36.5x oversubscribed we have been getting phone calls every day!"

There have been other IPOs by companies in the UAE in recent years but not on the local markets - why?

"This has to do mainly with UAE company law. If you want to list on the DFM, you have to do a capital increase of 55 per cent you can't do a sell down. I think the companies that went to London didn't want to leave themselves with a huge amount of cash they could not deploy and there was not the liquidity locally either. After 2013, liquidity is back. We have also been watching Emr's plans with interest [in March 2014 Emr Properties, 29.22 per cent owned by Dubai's sovereign wealth fund Investment Corporation of Dubai, announced it would list up to 25 per cent of its Emr Malls Group through a secondary listing].

"So Emr got an exception to the rule, raising 25 per cent only. Ultimately the company law will change and it is likely that the exception given to Emr would become the general rule."

Such a change in regulation would only serve to increase demand, wouldn't it?

"I don't see a reason why a local company would go to an international exchange outside the UAE if such a law is applied. We have liquidity, we have ease of access for international investors, being part of MSCI; companies don't need to go to London anymore."

IPOs are only one part of what happens in an active, liquid market; what else is going on?

"If the IPO market is open then companies have more choice in exits. The whole private equity (PE) universe can be revived. I can do a PE transaction and know that in three, five or seven years I have an exit. We will see investment bankers, PE players, brokerages and everything relating to trading revive. It is not just IPOs, the whole range of investment banking financial services activities will prosper over the next few years."

Turning to CAPM Investment itself, what are the benefits of being part of a larger group?

"There are many advantages, first of all there's the connection from the group. As a boutique investment bank the support we have from our board and from the board of Finance House, opening doors, introducing people is extremely important.

"Investors and clients are much more confident dealing with you, knowing there's a financial institution behind you.

Further, when we do a deal, say a PE deal, we usually invest alongside our clients. Finance House would be one of the investors, adding more confidence.

"Finally, and this is a very important point, it reduce our costs. There are a lot of synergies between CAPM and Finance House. We use a lot of common services, from IT to admin and that reduces our costs significantly."

What does the future hold for CAPM Investment?

"We will see business growing on the advisory side, in capital-raising in general, whether by IPO or PE placement and there is also a very interesting niche in DCM (debt capital market). We have a couple of mandates right now helping companies raise money through debt instruments.

"Also, on a selective basis we are looking at expanding our asset management business, offering some funds to our clients. We are building up this business slowly.

"We see more activity in the market place, more activity in portfolio management, mainly advisory on both DCM and ECM (equity capital market).

"We are looking at M&A activity now that valuations have recovered and, with liquidity, are more 'real'. We are beginning to see a matching between buyers' expectations and sellers' expectations. As I've said, the whole investment banking eco-system is being revived from IPOs at one end of the spectrum to private placement and M&A at the other end.

"To be honest we are hearing from a lot of companies thinking about IPOs but it is not necessarily the best solution for them. Some need to go capital-raising through private placement, getting a strategic investor or PE firm, and go through a growth cycle before thinking of an IPO but right now 'IPO' is a 'sexy' word, everybody wants to do one!

"CAPM will remain a boutique entity focussed mainly on the UAE as part of the Finance House group. We aren't planning to grow to become a huge investment bank. We want to continue to benefit from the synergies we have with Finance House; we want to focus on the niche markets that are ignored by the bigger players and we expect to benefit from the current upswing in the market."


CAPM Investment was incorporated in September 2007 as a Private Joint Stock registered in the Emirate of Abu Dhabi with a capital of AED 55 million, It was licensed and regulated by the Central Bank of the UAE with operations covering the entire GCC region, and the wider MENA region. In November 2013, Finance House announced that it had acquired CAPM Investment.

Revealing the acquisition, Mohammed Abdulla Alqubaisi, Chairman of Finance House, said at the time that, "This step in conjoining CAPM to our fast growing group is an important strategic move that will allow us to leverage our existing strong customer base which will strengthen our position as a comprehensive financial services group in the UAE market and complete the circle of our products and services offering.

"Our strategy will concentrate on developing and restructuring CAPM by developing its products and services, through hiring top experienced personnel, while controlling its costs by utilising Finance House's existing resources to achieve the best results."

Mahdi H. Mattar has been CEO of CAPM Investment for the past couple of years. Previously he served as the firm's Chief Economist/Head of Research, a post he also held at SHU Capital before moving to CAPM Investment. Prior to SHU he had a short stint at the DIFC Authority and, before that, had a background in academia, lecturing on financial markets/institutions and commercial banking.

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Publication:Banker Middle East
Geographic Code:7UNIT
Date:Jun 1, 2014
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