Real estate initial public offerings (IPOs) have recently emerged as the most favorable among investors in the UAE. Nearly 51 percent of UAE investors preferred IPOs in the real estate sector, followed by technology at 41 percent and healthcare at 33 percent.
As the country’s market develops and grows further, investor priorities have shifted. UAE investors consider new issuers with organic growth investment plans as the main pillar for their use of proceeds. In addition, they are targeting firms with strong free cash flow and lower leverage. Edelman Smithfield’s UAE Investor Pulse Survey also reveals that investors are pushing for better clarity and availability of medium-term guidance on a quarterly basis.
UAE’s growing IPO market
The global economy experienced slower growth in 2023, marked by high interest rates, inflation and geopolitical tensions. However, the UAE’s resilience made room for growth in the IPO market, which contributed a remarkable 58 percent of 2023 IPO proceeds in the GCC region.
The survey attributes this resilience to the growing investor appetite and the UAE’s strong IPO pipeline. In addition, the UAE capital markets provide a distinct advantage given the presence of two stock exchanges (ADX and DFM) presenting greater investment opportunities. Moreover, the survey reveals that UAE investors believe newly listed firms are fairly valued and have shown confidence in the bookbuilding process.
This strong appetite is evident in that 84 percent of UAE investors are likely to invest in IPOs again. Meanwhile, 67 percent agree that having two distinct exchanges is advantageous to UAE capital markets. Besides, 71 percent of investors believe that the book-building process provides an efficient mechanism to discover the fair market price, as opposed to fixed pricing.
Read: Five key ideas for investors in the Middle East
Profitability emerges as key evaluation metric
The most important aspect of an investment story for a company going public for UAE investors is profitability. Following closely comes a strong balance sheet, brand awareness, predictability and visibility of revenue, and the scalability of the business model.
Notably, the importance of clear IPO communication in shaping investment decisions is evident with 65 percent of UAE investors seeking transparent communication as a key factor in their decision-making.
Focusing on fresh perspectives, 53 percent of UAE investors said that a defined ESG strategy positively impacts their willingness to invest in new listings. Meanwhile, 57 percent of them believe that board refreshment within the last two years positively impacts their willingness to invest in new listings. Finally, 59 percent believe that board diversity positively impacts their willingness to invest in new listings.
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