Empower IPO: Dubai district cooling company plans to sell 10% stake and list on DFM

World’s largest district cooling services provider plans to pay a minimum dividend of $232m per annum in the first two fiscal years

An Empower district cooling plant, foreground, within the Dubai International Financial Centre area. Bloomberg

Dubai plans to sell a 10 per cent stake in Emirates Central Cooling Systems Corporation (Empower), the emirate's district cooling provider, through an initial public offering as it looks to boost the size of its capital markets.

The Dubai Electricity and Water Authority and Emirates Power Investment (EPI) will sell a billion shares in Empower and reserve the right to amend the size of the offering, the company said on Monday. Dewa and EPI expect to sell 7 per cent and 3 per cent of the total issued share capital, respectively.

The offer price range will be published on October 31, the same day as the start of the offering that runs to November 7 for the first tranche, which is reserved for individual investors, and ends on November 8 for the second tranche that is allocated for professional investors.

Dewa and EPI will retain 90 per cent of the company after the offering and Empower is expected to list on the Dubai Financial Market on November 16. Dewa and EPI will hold a stake of 63 per cent and 27 per cent, respectively.

The company plans to pay a minimum dividend of Dh850 million ($232m) per annum, in the first two fiscal years after the IPO. It will distribute its first dividend payment, a minimum of Dh425m for the second half of 2022, by April 2023.

Empower's IPO is part of Dubai's plans that were announced last November to list 10 state-owned companies and increase the size of its financial market to about Dh3 trillion ($817 billion), as well as set up a Dh2bn market maker fund to encourage the listing of more private companies from sectors such as energy, logistics and retail.

“With its strong fundamentals and investment value proposition, Empower’s IPO will further consolidate Dubai’s strategy to deepen its capital markets and accelerate new listings in vital sectors,” said Sheikh Maktoum bin Mohammed, Deputy Ruler of Dubai, Deputy Prime Minister and Minister of Finance.

“The success of the initial phase of Dubai’s IPO strategy reflects the deep confidence of the global investment community in the emirate’s strategy for sustainable development, its track record of economic resilience, its long-term growth prospects and its ability to script global success stories.”

Empower was established by royal decree as a joint venture in 2003 to provide energy through its various plants to the emirate's property sector.

The company has become the world’s largest district cooling services provider. It will have 81 district cooling plants by the end of 2022 and a network that is more than 350 kilometres long, according to its website.

It is a central plank to achieving Dubai’s target of producing 100 per cent of its energy from clean sources by 2050.

As of the end of 2021, Empower had a connected and contracted capacity of about 1.64 million refrigeration tonnes and 1.5 million refrigeration tonnes, respectively.

It serves more than 140,000 corporate and individual consumers in 1,413 buildings, retaining more than a 76 per cent market share in Dubai’s district cooling sector, according to its website.

Empower is “well positioned to capture growth opportunities in Dubai as a result of its strong market position, which is expected to rise to approximately 80 per cent”, the company said in its announcement of its intention to float.

The company aims to “deliver incremental growth by leveraging infrastructure at existing developments to expand its network to nearby and adjacent developments”, it said.

Empower provides its services to projects that include the Deira Waterfront, Blue Waters, the Jumeirah Group, Jumeirah Beach Residence, the Dubai International Financial Centre, Business Bay, Dubai Healthcare City, Jumeirah Lakes Towers, The Palm Jumeirah, Discovery Gardens, Ibn Battuta Mall, Dubai Design District and Dubai Production City.

“With a fundamentally attractive and fast-growing market, driven by strong macro fundamentals and favourable government policy, we are excited about the future and look forward to serving all our customers and stakeholders,” said Saeed Al Tayer, chairman of Empower.

The district cooling sector’s market penetration in Dubai is forecast to grow to 40 per cent by 2030, from 25.6 per cent in 2021, in line with the growth trajectory of the emirate's population.

Dubai had 3.5 million residents in 2021 and the number is expected to grow at a compound annual rate of 2.5 per cent between 2019 and 2040.

The utility plans to build on its growth and acquisition track record and “explore further inorganic growth opportunities, both domestically and regionally in the broader Middle East region”.

The company is considering branching out to Saudi Arabia, Qatar, Oman and Bahrain.

“We have a success story and we need to share our know-how and technology with others. I would rather be in all markets but I am always looking at the right and strategic partners who will help me to grow the concept of district cooling,” Empower chief executive Ahmad bin Shafar The National.

Empower has met more than 200 cornerstone customers and investors from the UK, Europe, the US and the GCC as part of its IPO roadshow and they have expressed a keen interest to invest in the company, he said.

“The feedback which we received was extremely good and we expect that it will be oversubscribed,” Mr bin Shafar said.

The company registered Dh1.15bn of revenue in the first half of 2022 and earnings before interest, taxes, depreciation, and amortisation of Dh600m.

Dubai's most recent IPO was in September, when the emirate's toll operator, Salik, raised Dh3.73bn from the sale of a 24.9 per cent stake.

Dewa raised Dh22.41bn from its IPO earlier in the year, making it the largest public float in the Middle East and Europe since Saudi Aramco went public in 2019.

Tecom, the operator of business districts in Dubai, also made its debut on the DFM in early July, having raised Dh1.7bn from its IPO a month earlier.

The number of listings in the Mena market increased sixfold during the first six months of this year, with 24 IPOs raising $13.5bn, according to an EY report on the region's IPOs. In the second quarter of 2022, nine IPOs raised about $9bn.

The UAE was the biggest IPO market in terms of the aggregate value of deals while Saudi Arabia led in terms of volume, with five IPO deals in the first six months of the year, according to EY's data.

Moelis & Company are acting as independent financial adviser to Empower. Citigroup, Emirates NBD Capital and Merrill Lynch International have been appointed as joint global co-ordinators while EFG-Hermes is joint bookrunner.

Emirates NBD is the lead receiving bank on the Empower IPO. Other receiving banks include Emirates Islamic Bank, First Abu Dhabi Bank, Abu Dhabi Islamic Bank, Mashreq Bank, Ajman Bank, Dubai Islamic Bank, Al Maryah Community Bank, the Commercial Bank of Dubai and the Bank of Sharjah.