The planned initial public offering of Massar Solutions is likely to be put on hold after a disappointing take-up of shares against the backdrop of volatility in regional capital markets and falling oil prices.
The subscription period for the offering closed a week ago, and allotments were due to be decided this weekend ahead of a listing on Abu Dhabi Securities Exchange later this month.
But an advisory source familiar with the situation has revealed that significantly less than half of the shares in the Dh576 million IPO were taken up by the Emirati retail and institutional investors for whom they were reserved.
The company's options are being discussed by its advisers and by the Securities and Commodities Authority, the UAE regulator. A decision is expected in the next 48 hours, but the source said that it was likely that the IPO would be postponed until market conditions were more favourable. Investors who have subscribed to shares at Dh2.40 each will have their money returned, the source added.
Experts believe a decision to postpone the IPO would be a setback for UAE markets and for companies that have offerings in the pipeline.
"As the region's markets have turned bearish, spooked by the tumbling oil price, this may already have led to the postponement of a handful of IPOs slated for 2015," said Husam Hourani, the managing partner of Al Tamimi & Co, the law firm that advised on many of last year's stock market flotations.
Planned IPOs for Gulf Capital, Al Habtoor Group and the hotels operations of Emaar Properties are now likely to be reconsidered only in the second half of the year and only if market conditions improve, he added.
Massar – which has a long and profitable trading record as the Al Wathba vehicle fleet management firm – was billed as a landmark, the first Abu Dhabi company to come to market in the recent surge of UAE IPOs, which have all been in Dubai.
The two controlling shareholders – Taqa and Abu Dhabi Investment Company (Invest AD) – wanted to sell 20 per cent each of their shares in a market listing reserved for Emirati retail and institutional investors.
Although the company and its advisers reported good initial interest, it is believed that many investors failed to provide firm commitments to buy shares in the couple of days before the subscription period ended on January 25.
"In view of the fact that some listed shares are currently trading below par value, investors are incentivised to buy existing shares rather than participating in new IPOs, where they have no visibility on allocation, in addition to the associated leveraging costs," said Mr Hourani.
The falling oil price and its effect on capital markets was cited as a factor in the last-minute drop in interest for the offering.
"The falls in both Dubai and Abu Dhabi's stock exchanges are primarily driven by concerns about falling oil and gas prices," said Mr Hourani.
The ADX General Index has shed more than 15 per cent since the start of June, about the same time that oil prices began to fall. Dubai's benchmark is down nearly 28 per cent in the period.
"The impact on DFM-listed companies is not strictly logical because the oil and gas industry is not a major part of Dubai's diversified economic base, and most of the companies affected do not actually operate in the oil and gas industry. Nevertheless, the oil price fall has driven the market sell-off," Mr Hourani said.
"The outlook should improve once it becomes evident that the big energy producing countries have years of reserves, and if those countries display a willingness to sustain existing levels of public expenditure for an extended period.
"Under this scenario, it is reasonable to assume there will be a handful of IPOs in 2015, but it will not be as busy as 2014; and most anticipate IPOs to come from industries expecting significant growth in the GCC, such as health care and education."
fkane@thenational.ae
Follow The National's Business section on Twitter