Banks in the UAE are already cashing in on DEWA IPO - by lending to potential investors

Who is signing up for the DEWA IPO? By the looks of it, the IPO has already built up sizeable interest at the retail investor level.

Dubai: Banks in the UAE are seeing a rush of interest for loans – and they have the upcoming DEWA IPO to thank for it.

Retail investor interest in the DEWA IPO – which opens for subscription March 24 – had been building well ahead of last Tuesday’s formal announcement by the Dubai utility services provider about selling a 6.5 per cent stake and listing on DFM. Now, with the announcement, retail investors are out to come up with the funds to pick some of the DEWA stock. This is where banks come in.

DEWA did its part too, by confirming a ‘minimum’ annual dividend payment of Dh6.2 billion for each of the next five years, and with the payout to be made semi-annually. This dividend would be the highest by a listed Dubai company – and prospective investors in the IPO sure liked the sound of that.

“The terms on these loans to buy the DEWA shares vary with the bank and the clients, but average borrowing rates are in the 5-6 per cent range,” said a source. “There have been loans offered at even 0.5 per cent over the EIBOR rate to select clients. It is based on the client’s credit score and with the added assurance of the DEWA shares as security.

“The DEWA IPO has set off a spark in retail investor interest not seen in Dubai’s stock markets for the last three- to four years. Banks are more than willing to help meet investor interest – and cash in too.” (Today's one-month EIBOR rate is 0.44 and the three-month one is 0.86.)

Some of the recent profit taking on DFM counters could be related to investors cashing out and then put those funds to work by subscribing to the DEWA IPO.

Vijay Valecha, Chief Investment Officer at Century Financial, however, reckons that it would fresh funds and new stock market participants that will drive DEWA's IPO to a new record for the Dubai stock markets.

"The retail investor interest is building up ahead of the March 24 opening day, and the process of applying for this IPO has been made easy," Valecha said. "And the education on how to apply for the IPO has been great. Above all else, it is a company that is so well known to everyone in the city."

That too does help.
Put up half the amount
Banks are willing to meet the investor needs for funds half-way - literally. They will put up half of the amount being asked for, with the DEWA stocks then being used as collateral. “Given the clear guidelines that exist on lending against securities, there would be no problem in raising the initial 50 per cent or even more,” said Sameer Lakhani, Managing Director at Global Capital Partners. “And the lending requests are approved almost instantaneously.”

Some of the earlier IPOs in Dubai too had generated significant retail investor interest. But after a near four-year gap, these investors - and banks - are once again ready for some serious action. The March 24 to April 2 period, which is when the DEWA IPO subscriptions are open, will show big that interest is.

For an investor to borrow against stocks, the voting rights immediately transfer to the lender. This is fine as long as there are no breaches of margin requirements.

The benefits of any future upside on the stock price accrue to the borrower of the shares. 

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