It seems somewhat counterintuitive, given the blows to aviation stocks over the past 21 months, but Emirates could be the next big airline to head into the stock market.
The chairman of the Dubai-based carrier, Sir Tim Clark, has indicated that an initial public offering (IPO) may be imminent depending on the advice of its owner, the government of Dubai, which is keen to promote its local stock market.
Speaking ahead of Reuters Next, a virtual conference bringing together politicians and business leaders from around the world, Sir Tim said of a possible listing: “Yes, we’ve talked about it.
“Yes, there has been perhaps a little more flesh on the whole subject than there has been in the past.
“I am awaiting instructions on how this will affect the Emirates group.
“What the government of Dubai decides to do…
Discussions about a possible privatization of Emirates have arisen from time to time in the past.
The president of the airline, Sheikh Ahmed bin Saeed Al-Maktoum, said as early as 2007 that an IPO was possible with Sir Tim indicating at the time that the carrier would be valued between $ 20 billion and $ 30 billion.
The late Sir Maurice Flanagan, who co-founded the airline in 1985, said in 2012 that an IPO would one day be appropriate.
But the drumbeat towards possible privatization has intensified in recent weeks.
CNBC Arabiya TV reported earlier this month from the Dubai Air Show that Sheikh Ahmed had indicated that registration was possible.
What has changed is that privatization is on the agenda in Dubai as part of a larger campaign to encourage activity on the local stock exchange.
Emirate government plans to privatize 10 state-backed companies, listing some of their shares on the Dubai Stock Exchange, in an attempt to mimic the success of neighbors Abu Dhabi and Saudi Arabia .
The latter succeeded in bringing Saudi Aramco, its former state oil producer, to the market in December 2019 as part of the world’s largest IPO.
The IPO resulted in stiff competition between London, New York and Tokyo over who would host secondary listing but ultimately the shares were listed only on the Tadawul, the Saudi stock exchange, which attracted much more interest from international investors.
ADX, the Abu Dhabi Securities Exchange, has also been very successful.
It is now the second largest stock exchange in the region after Tadawul after a series of successful IPOs including ADNOC Drilling, a branch of the state-owned Abu Dhabi National Oil Company.
Its $ 1.1 billion IPO in October, which valued it at $ 10 billion, was the largest ever on the exchange and was massively oversubscribed.
The main ADX index has risen 69% this year and the companies listed there now have a market capitalization of £ 328 billion.
In contrast, the General Index DFM, Dubai’s main stock index, has only risen by 23% so far this year.
The value of shares traded in Dubai was surpassed by Abu Dhabi two years ago and the daily volume traded on the latter’s stock exchange is now four times that of its neighbor.
This partly reflects some high-profile radiation from DFM and Nasdaq Dubai.
They include Dubai Parks Operator DXB Entertainments and Dubai Port Operator DP World.
Another prominent Dubai firm, construction firm Arabtec, was delisted after going into liquidation in September last year, while a large real estate company, DAMAC Properties, was delisted. earlier this month.
Meanwhile, Emaar Properties, the emirate’s largest listed developer, is in the process of buying out minority shareholders in its branch Emaar Malls.
Thus, Dubai, especially as it seeks to diversify its revenues away from oil and attract new sources of income, is once again turning to privatizations.
Of the 10 state-owned enterprises slated for privatization, only a few have been named so far.
The first, appointed in early November, was the Dubai Electricity and Water Authority (DEWA).
He has already called on the American investment bank Moelis to advise him on an IPO.
The second is Salik, operator of Dubai’s toll highway system, who was named on Twitter as a candidate for privatization earlier this month by Sheikh Maktoum bin Mohammed, the deputy ruler of Dubai, who appears to be behind the scenes. much of the privatization campaign.
It is he who will ultimately give the green light to any IPO.
In order for Emirates to enter the market successfully, without being sold at a broken price, investors will need to be convinced that it can trade profitably in the future.
The carrier has received support estimated at $ 3.8 billion from the Dubai government since the start of the pandemic as it has suffered heavy losses.
But Sir Tim said today that no further government support would be needed unless the new Omicron variant of COVID-19 turns out to be more disruptive than expected.
He told Reuters: “We are restoring our cash flow at a steady pace.
“So it’s unlikely, despite the Omicron variant and its effects… if it’s not as bad as people think, then we no longer see any recourse for the owner to invest equity in the business. “
“I am very happy to say that we have already returned to profitability, in the last six or seven weeks we have been profitable.”
However, in order to operate profitably, Emirates will once again need to take off more of its Airbus A380 superjumbos.
Sir Tim previously said those 120 planes represented four-fifths of the airline’s profits – and yet many other carriers, including Lufthansa, Air France and Thai Airways, have either permanently grounded their A380s or are on the verge of taking their retirement. them.
Emirates still believe, as do British Airways and Singapore Airlines, that the giant plane remains popular with customers.
It’s a judgment that will prove to be crucial if the shares of Emirates itself are to take off.