Dubai is selling a 20% stake in its road-toll collection system in a deal that could raise about $1 billion for the government, as part of the city’s ongoing efforts to boost trading volumes.
(Bloomberg) — Dubai is selling a 20% stake in its road-toll collection system in a deal that could raise about $1 billion for the government, as part of the city’s ongoing efforts to boost trading volumes.
The emirate will sell 1.5 billion shares in the company, known as Salik, according to a statement on Monday. The offering starts on Sept. 13, with an expected listing on the Dubai stock exchange on Sept. 29.
Salik’s IPO will test investor appetite after the summer in the Gulf, which saw record listing proceeds in the first half. But the elevated oil prices and equity inflows that buoyed regional markets have since come under pressure from concerns about a possible recession.
“We are fully aware of the economic conditions, we are fully aware of inflation and so on,” Chief Executive Officer Ibrahim Al Haddad said. “We are totally confident this will be very good news when we announce the price range and it will be received positively by the investment community.”
Read More: Dubai IPO Hopefuls Queue Up as Tougher Quarter Nears: ECM Watch
The deal is part of wider plans to list 10 state-owned firms in a bid to reverse years of falling trading volumes and catch up with neighboring Abu Dhabi and Saudi Arabia. Dubai had previously seen just one small IPO since 2017, while a string of high-profile delistings dented investor confidence.
It’s not all smooth sailing, with the first two privatizations yielding mixed results. Dubai Electricity & Water Authority has given up most of the early gains from its debut, while business park operator Tecom Group is trading 10% below its offer price. Meanwhile, Emirates Central Cooling Systems is said to have finalized bank appointments for its upcoming IPO.
Still, Dubai’s benchmark index has held up relatively well amidst the global selloff. The Dubai Financial Market General Index is up 4.8% so far this year, compared to a 22% drop in the MSCI Emerging Markets Index.
Dynamic Pricing, Consulting
Arabic for open, Salik is an automated system introduced in 2007. Each time a vehicle passes through one of the city’s eight toll points, 4 dirhams ($1.09) are charged to a prepaid account, eliminating the need for cash or toll booths. The firm is a critical asset — about 60% of commuters in Dubai use private cars and net toll traffic from 2013-2019 grew at a compound annual growth rate of 5.5%.
The Middle East’s business and tourism hub last year unveiled an ambitious urban plan that predicts population will surge 76% over the next two decades, and the government expects Salik to be one of the main beneficiaries. Other steps, including a move to dynamic pricing at toll gates to reduce congestion, may boost revenue.
In addition, Salik said it could potentially offer consulting services to other major cities looking to implement similar toll systems, and that it might consider monetizing data it collects as part of its operations.
The firm plans to pay dividends twice, in April and October of each fiscal year and Salik CEO Al Haddad said the firm will offer “attractive” payouts. “With that dividend yield I am confident we will attract the right investment and the strategic partners and shareholders,” he said.
Al Haddad said Salik is very well-leveraged and has strong cash flow. From a liquidity and leverage capacity, the firm is capable of financing expansion and will look at opportunities within Dubai and outside, he said.
Emirates NBD Capital, Goldman Sachs and Merrill Lynch are the global coordinators, while Citigroup Global Markets Limited, EFG Hermes UAE Limited and HSBC Bank Middle East Limited are the joint bookrunners on the offering. Emirates NBD and Moelis are the financial advisers.
(Updates with details)
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