7 Reasons Why You Should Invest In Dubai DEWA

Dubai: If you were still hesitant about whether or not to invest in Dubai’s state-owned water and power utility DEWA’s proposed initial public offering, we look at seven different reasons why you should.

1. Bid size

Although the likely size of the IPO will be clear after March 24, when the time to subscribe to the shares opens, several Dubai-based market analysts are pricing how the 6.5% IPO involves an IPO size of around 10 billion dirhams and a total market value of over 100 billion dirhams.

What happens during the subscription period of an IPO?

The day before the IPO date, interested parties must decide on the offer price (i.e. the price at which the shares will be sold by the issuing company) and the precise number of shares to be to sell. This happens during the “subscription” period.

“Subscription” or a share that is “subscribed” are terms used to describe newly issued shares that an investor agrees to purchase before the official listing date. Subscriptions are common in IPOs and subsequent offerings. Institutional or qualified investors are most often those who can subscribe to a new issue.

This breadth of the utility giant’s offering is a key reason why investor participation could set a new record for an IPO in Dubai, analysts say. The deal is the first new listing in Dubai since 2020 and is expected to be the UAE’s largest IPO on the Dubai Financial Market (DFM) since 2017.

2. Payment of dividends

A stock purchased in an IPO has the potential to generate huge capital gains decades later, according to historical data. Even a very successful company’s annual dividend income alone can exceed the amount of the initial investment, given a few decades – which brings us to the first reason.

With respect to dividend policies, DEWA intends to pay dividends twice per fiscal year – in April and October of each year – following the offering. (A dividend is a distribution of profits to its shareholders. When a company makes a profit or surplus, it is able to pay out part of the profit as a dividend to the shareholders. Any undistributed amount is considered to be reinvested in the business.)

It plans to pay out a minimum dividend amount of Dh6.2 billion per year, over the next five years, from October 2022 to April 2027, with some experts analyzing how the utility will eventually consider tripling its annual dividend target after its listing.

3. Mature IPO market

Analysts agree the timing couldn’t be better, with overwhelming demand for the region’s latest IPOs proving it. Since government entities that recently listed on the stock exchange have attracted massive interest from investors, so should government entities in Dubai.

ADNOC Drilling, the largest domestic drilling company in the Middle East by size of its rig fleet, saw its listing oversubscribed as of late. The unit of Abu Dhabi oil giant ADNOC saw its initial public offering (IPO) of 1.1 billion dollars (4 billion Dhs) exceeded by investors placing more than 38 billion dollars of orders (140 billion of Dh).

Fertiglobe, the Abu Dhabi-based chemical joint venture of Dutch-listed energy giant ADNOC and OCI, raised $795m (Dh2.92bn) in what was the third-biggest listing yet on the Abu Dhabi Stock Exchange (ADX).

Learn valuation, feel the market before investing in an IPO

Looking at valuation may seem tricky for investors, but it’s an important aspect that shouldn’t be overlooked. To get started, see what the business is worth in the market (valuation) compared to its peers or existing businesses in the same industry.

Simply put, to measure the market value or “worth” of a business, a bank considers the assets the business owns, the debt it owes to lenders, the number of employees, sales, earnings and the total number of shares she owns in total.

A number of experts had one common thing to say when investing in an IPO and they can’t stress it enough, always looking back at how the stock price of recent IPOs ended up behaving on the market. So always look at how stock prices from recent IPOs have ended up behaving in the market.

DEWA and its subsidiaries, which serve the 3.4 million people of the United Arab Emirates with more than one million customers in Dubai, own assets worth up to 190 billion dirhams.

4. International interest

Current trading volume shows that foreign investors are expressing significant interest in the Dubai Financial Market (DFM), implying that the latest initiatives are a game-changer from a foreign market perspective.

With global financial markets trading at all-time highs, prominent fund managers are looking for high-quality assets to diversify their portfolios, and analysts believe Dubai government assets fit the bill perfectly.

So far, on the DFM, real estate, large telecommunications companies and, to some extent, banks have been the most actively traded stocks, according to the data. But in recent years, trading volumes have been lower than the market between 2005 and 2008.

Analysts are evaluating how DEWA listing will trigger a shift in this trading pattern, and with interest from overseas investors, it can create much larger trading volumes.

5. Strong balance sheet

DEWA and its subsidiaries, which serve the 3.4 million people of the United Arab Emirates with more than one million customers in Dubai, own assets worth up to 190 billion dirhams and have recorded revenues of 23.8 billion dirhams in 2021, with annual growth of 2% between 2019 and 2021.

The utility giant, which reported core profit of 12.1 billion dirhams in 2021, is widely seen to have a strong balance sheet with low net debt of just 17.6 billion dirhams last year.

6. The future of clean energy

While the electricity utility has recently reiterated targets such as the Dubai Net Carbon Strategy 2050 and the Dubai Clean Energy Strategy 2050, DEWA aims to deliver 100% of capacity of Dubai’s power generation from clean energy sources by 2050.

“DEWA has a continuing track record of good governance in all of its operations,” Saeed Mohammed Al Tayer, Managing Director and CEO of DEWA, ​​said at a press conference in Dubai on Tuesday.

“It is ready to meet the growing demand for electricity and water in the emirate, as the population is expected to grow from around 3.5 million people today to 5.8 million people by 2040. .”

7. No need for debts

DEWA has several projects underway, including a mega solar power plant. A major shift to renewable energy projects is underway, and experts believe these will require heavy capital outlays. According to DEWA projections, this year will see 8 to 9 billion dirhams of expenditure.

On the debt side, the CEO hinted earlier that the company wanted to keep the burden light on the business, saying DEWA would not need to take on debt over the next five years.

Analysts agree that the company’s finances are strong, that it has a strong financial track record, and that it should improve further with a focus on sustainability – and that’s exactly what count all potential IPO subscribers.

How can investors subscribe or buy DEWA shares?

Each person wishing to subscribe or purchase shares of DEWA must submit a subscription request each, through their bank or brokerage firm, in their own name (unless they are acting as the representative of another subscriber ).

Subscribers or prospective investors should ensure they have an updated NIN and complete all relevant fields in the subscription application along with all required documents and submit it to the bank, along with the amount of the intended subscription during the offer period.

Bottom line: Keep these 6 factors in mind when buying stocks in an IPO

1. If you were wondering how to increase your chances of getting an IPO attribution, here’s what you need to know. All IPOs are most often only available during the early days of the bidding process.

(What does it mean to “allocate” shares? When an IPO is announced, investors of different categories start applying for shares. Once the applied share is credited to their trading account, it is called an allocation of shares. shares or “IPO award”.)

2. If you plan to bid, bid within the first few days, if possible one day after it becomes available. Bidding as early as possible increases your chances of being awarded.

3. More often than not, there will be more demand than supply for a new IPO. For this reason, there is no guarantee that all investors interested in an IPO will be able to buy shares.

4. Individuals interested in participating in an IPO can do so through their brokerage firm, although access to an IPO may sometimes be limited to a firm’s large clients.

5. Generally speaking, IPOs are popular among investors because they tend to produce volatile price movements on the day of the IPO and shortly thereafter. This can often produce significant gains.

6. Ultimately, investors should judge each IPO based on the company’s prospectus that goes public, as well as their financial situation and risk tolerance.

Dorothy H. Lewis