Utility tool
Dubai is pumping water into its IPO desert. The floatation of utility Dubai Electricity and Water Authority (DEWA) promises to be the largest local listing in 15 years. That said, the $34 billion price tag looks quite cheap, reflecting the emirate’s wider stock-market ambitions.
DEWA’s bosses and bankers are under pressure to ensure that the initial public offering is a roaring success. The deal is the opening move in a campaign to persuade more companies to list in Dubai. The emirate missed out on the IPO party enjoyed last year by rivals Abu Dhabi and Riyadh, which together raised more than $7 billion from investors. After a four-year listing hiatus, the government hopes to sell stakes in nine more state-owned companies, including its flag-carrying airline, Emirates.
Ruler Sheikh Mohammed bin Rashid al-Maktoum is therefore enticing investors with a juicy opening course. DEWA is selling a 6.5% stake at 2.25 dirhams to 2.48 dirhams per share. At the top end of the range, and after adding $7.5 billion of net debt, the company will have an enterprise value of $41 billion. That’s less than 11 times this year’s expected EBITDA, assuming DEWA’s growth sticks on last year’s trajectory. By contrast, European and Gulf water and energy providers like Snam, Elia, National Grid, United Utilities, Tabreed and Qatar Fuel trade on an average 13 times multiple.
Arguably, the Dubai firm is in a stronger position. DEWA benefits from the large number of foreigners living on its patch, most of them with pockets deep enough to pay a premium for utility services. Its adjusted EBITDA margin in 2021 was a juicy 51%, compared to 25% at UK power utility National Grid. Demand for its services may even jump if Western sanctions against Russia prompt an influx of wealthy Muscovites. Even without that potential boost, DEWA’s 5% dividend yield looks attractive against the 3.6% average of other European or regional utilities.
Of course, offloading a chunk of DEWA at a knock-down price is a short-term miss for the government. However, if the plan works, the longer-term prize will be worth far more.