Why is Abu Dhabi bothering with such a tiny IPO?

Today the first initial public offering since the global financial crisis goes on sale in Abu Dhabi. But you have to wonder why this tiny $18 million share listing, which is open until March 7th, is happening at all.

If the aim is to show that IPOs are still possible in the UAE – after the humiliating failure of the larger Axiom listing in Dubai in December – then there is some point to this exercise, although it still shows the weakness of the bourses in the Emirates in that they can only handle a small IPO with the backing of Abu Dhabi and all that inevitably means.

Micro-IPO

For the Insurance House – perhaps ‘Insurance Studio’ would be a more appropriate name – will still be 36 per cent owned by Finance House, the Abu Dhabi state-owned Islamic personal finance group. Mashreqbank, National Bank of Abu Dhabi, National Bank of Fujairah and perhaps inevitably Finance House are handling the sale which is open to nationals only, although in a late development foreigners will be able to own up to 20 per cent of its shares in the after market.

It is hardly the sale of the century but Dubai’s quoted insurers last week saw their share prices tumble in advance of the IPO. Investors may be reasoning that the sale will depress the valuation put on these stocks, though no pricing information has been published. Indeed, very little information has been released to the press. This appears an old-style IPO generally seen as a give away to nationals with a consequently high subscription level.

Crash risk?

A successful micro-IPO is unlikely to impress, and there is of course the substantial risk that Abu Dhabi could end up with most of these shares if global stock markets continue the downtrend that began last week. Is it worth the risk? Clearly somebody thinks so.

What is really needed to get the UAE bourses moving again is the unification of the Dubai and Abu Dhabi platforms, and a united trading board. But even that landmark market reform would be best left until global markets have corrected and found a new base level.

In a world of high oil prices and Arab unrest then the UAE could emerge as a prosperous safe haven, and look particularly attractive to global investors if its stock market has critical mass and larger investment opportunities. One small IPO does not cut the mustard, even if it can rack up a big over-subscription. The ArabianMoney newsletter published tomorrow looks in depth at the impact of the Arab Revolt 2011 on investment options (click here).