The third listing in the emirate this year, Dubai hopes to raise $817 million in the initial public offering of its road toll collection system.
Salik, the toll-gate operator in Dubai, has set a price of Dh2 per share for its initial public offering, which is expected to draw one of the largest subscriptions for a company that will list on DFM to date. When subscriptions opened, the corporation chose to go straight for the ultimate amount rather than provide a rough pricing range.
The price was announced via advertisements in local media and was ‘determined following investor engagement that saw significant strong initial demand indications from both local and international investors. The IPO opens for a subscription later today (September 13).
The pricing has taken analysts by surprise, who had been thinking of a per-share price upwards of Dh2.60. “Salik could have commanded a share premium and they wouldn’t have to wait for the over-subscription,” said an analyst. “The market’s got a buzz around Salik, and there was already heavy retail investor engagement with the IPO.”
The IPO will offer 1.5 billion shares at Dh2 apiece, which represents 20 percent of the company’s equity capital. The Emirates Investment Authority and the Pensions and Social Security Fund of Local Military Personnel will both receive up to 5 percent apiece, according to the announcement.
The first post-IPO dividend will be paid in April next.
Ahead of the IPO opening, Salik also confirmed two cornerstone investors coming on board – UAE Strategic Investment Fund, Dubai Holding, Shamal Holding and The Abu Dhabi Pension Fund. Together, these investors have committed around Dh606 million (and this comes with a 180-day lock-up period), based on the announcement.
Salik operates 8 toll-gates in Dubai and had earlier given a roadmap on how it intends to widen its revenue base – through surge pricing, data monetisation, more toll gates if approval is given, and consultancy services.
In another move that went down well with prospective subscribers, Salik – which transitioned into a company on July 1 – said all of its future profits would be issued as dividends.
The way Salik announced its final price is also quite a departure from how DEWA and Tecom went about their share offerings. Salik set a final price right at the outset instead of confirming one close to the ending of the subscription.
The company could raise the issue if demand warrants such a move. (DEWA had done so during its own subscription phase.)
According to one analyst, “There’s a high probability that Salik would raise the issue size, given the kind of demand that retail investors would have.”
With Dubai’s urban infrastructure expanding at an optimum speed, more toll gates will form part of it. Salik estimates between Dh20 million to Dh30 million to launch new ones, depending on the number of lanes at a new location.
Top officials at the company have maintained that all decisions on new toll-gates in Dubai will have to be approved by The Executive Council. Salik operates the gates under a 49-year lease agreement with RTA.
Surge pricing, in which various toll prices are in effect during periods of high peak traffic, is another option for enhancing the future revenue stream. Targeted advertisements and messages from outside sources may also be made available to Salik users, again based on the day of the week, the season, etc. Here, data monetization will serve as a sizable cash reserve for upcoming earnings.
