(Bloomberg) -- Lulu Retail Holdings Plc’s shares closed flat after its $1.72 billion initial public offering in Abu Dhabi, marking the second instance of a muted debut for a large Middle Eastern listing in recent weeks.
The hypermarket chain operator ended at 2.04 dirhams ($0.56) per share Thursday, erasing earlier losses of as much as 2.5%. The United Arab Emirates’ largest IPO of the year was priced at the top end of the marketed range.
The offer had demand for all shares an hour after books opened last month, and Lulu’s owners subsequently boosted the size of the deal to 30% from 25%. The share sale had drawn sovereign wealth funds including Saudi Arabia’s Public Investment Fund and Singapore’s GIC Pte.
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“More and more people start subscribing to the IPO by looking at over-subscription numbers floating around – expecting even lower allotment,” said Neetika Gupta, the head of research at Ubhar Capital. “However, it doesn’t really translate to secondary demand once the shares start trading.”
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Listings in the Middle East have typically offered stellar returns in early trading. Still, Oman’s OQ Exploration & Production dropped 8% in its debut two weeks ago, after raising a record $2 billion. High-end supermarket chain Spinneys 1961 Holding Plc, which raised $374 million in May, too had a quiet listing and continues to trade around the offer price. Both those deals too were oversubscribed.
Billionaire Founder
Lulu’s share sale boosted founder Yusuff Ali’s net worth to $7.1 billion, cementing his position as the UAE’s second-richest private individual, according to the Bloomberg Billionaires Index.
India-born Ali, who turns 69 on Friday, arrived in the UAE in 1973 and opened his first grocery store a year later. Lulu has since grown into one of the Middle East’s largest hypermarket chains and reported a profit of $192 million last year. It serves over half a million shoppers a day from 240 stores in six countries across the Gulf, and employs more than 50,000 people.
Lulu’s margin performance will be a key trigger for the stock’s performance, according to analysts. The grocer’s chief executive officer told Bloomberg News that its net profit margins are expected to reach 5% over the medium term, up from 2.6% in 2023.
“The stock could re-rate higher once investors are confident that execution on margin expansion front is ongoing.” Dipanjan Ray, portfolio manager and head of research at Emirates NBD Asset Management, said.
Ubhar Capital’s Gupta concurred. “Lulu remains an attractive story on potential margin expansion – and the stock price should eventually reflect this when the margin improvements and growth are reported in due course.”
--With assistance from Kateryna Kadabashy.
(Updates with closing price)
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