How to invest in an IPO in the UAE: A step-by-step guide for investors

Initial Public Offerings (IPOs) allow investors to diversify their investments across various sectors in the UAE, including technology, healthcare, and energy. During the IPO stage, companies can raise capital by publicly offering shares for the first time as they transition from private to public entities. The UAE's IPO market remains active, with organizations continually seeking listings on the Dubai Financial Market (DFM) and the Abu Dhabi Securities Exchange (ADX). Public investors can purchase shares issued during IPOs at preferential prices before the stock exchange trading day. Potential investors need a complete understanding of IPO investment rules, along with associated procedures and security challenges.

Investing in IPOs is attractive for several reasons. Firstly, investors have the opportunity to participate in private companies with high growth potential before they become publicly listed. This investment can yield substantial profits if the company performs strongly post-IPO. Secondly, stock prices can significantly increase after listing, creating opportunities for capital appreciation. Historical records indicate that the first trading day of an IPO often leads to a considerable rise in its stock price. Moreover, through IPOs, investors can diversify their investments across different sectors of the UAE economy, including industries like technology, healthcare, and energy.

The UAE government's support for IPOs stimulates foreign and institutional investment, thereby promoting national economic growth. The UAE government is also actively promoting the privatization and public offering of state-owned enterprises, which makes this topic particularly important. To participate in IPO investments, potential stakeholders need to meet specific eligibility criteria and clear requirements.

Firstly, obtaining a National Investor Number (NIN) is necessary. A NIN is a fundamental requirement for conducting trading activities on the DFM or ADX. The process of obtaining one is straightforward, and potential investors can acquire a NIN by submitting their Emirates ID and an application form through an online portal or by collaborating with a broker. Every investor in the UAE financial markets must possess a NIN, serving as their unique market identity. Secondly, potential investors need to open an account with a brokerage firm authorized by the UAE government to participate in IPO subscriptions. Some banks also offer IPO subscriptions through their wealth management services. Investors should choose a broker that can provide extensive research reports on upcoming IPOs.

IPOs in the UAE typically go through a regulated process, including announcement, subscription, and allocation phases. Investors can track upcoming IPOs through the DFM, ADX, and brokerage platforms. Investors receive advance notice regarding subscription periods to prepare accordingly. Subscribing to IPOs in the UAE can be done in several ways: direct subscription through the stock exchanges, using the ADX and DFM platforms to apply directly. The subscription process requires a valid NIN status and a linked bank account with sufficient funds. Users can easily conduct IPO subscriptions through internet platforms. Furthermore, subscriptions can be made through brokerage firms, where licensed brokers assist retail and institutional investors with IPO subscriptions. Research reports, financing services, and market insights provide IPO investors with market intelligence through brokerage firms. In high-demand issuances, investors are more likely to obtain IPO shares if they choose to use broker services. Finally, IPO subscriptions can be made through banks, such as subscribing to new IPOs via the Abu Dhabi First Bank (FAB) and Emirates NBD bank applications. These banks offer IPO financing programs, enabling investors to maximize their investments by borrowing funds. The ability to invest in the maximum number of newly public shares offers a distinct advantage to investors aiming to pursue promising IPOs.

The pricing process for IPO shares is conducted through a combination of book-building methods and fixed-price systems. The pricing and allocation procedures follow these steps: Through the book-building mechanism, the company and its underwriters assess shareholder interest in IPO shares before determining the final share price. Investors place two-part orders, specifying the number of shares and their desired purchase price. The final price point is jointly determined by market demand and the complete supply of shares. Companies sometimes determine a specific IPO share price before the issuance date through a fixed-price offering. This particular method makes the IPO procedure easier for investors, but it is spread in less frequent cases. The allocation process uses the investor's subscription tier type (institutional or retail) to allocate shares to investors. Small lots are typically allocated to retail investors, while institutional investors receive larger quantities of shares, especially during peak demand. After the IPO subscription concludes, subscription funds for unallocated shares are refunded to return investors' full funds.

To invest more in IPOs, investors have different financing options available: Banks and brokers offer leveraged IPO financing, allowing investors to obtain loans to increase their investment size. This strategy enhances investment potential and exposure but also intensifies risk factors. IPO subscription payments require selecting direct debit services, checks, online transfers, and bank guarantees to process these payments. Payment success depends on sufficient funds availability and the acceptance of payment methods by the brokerage or banking institution. Institutions have different policies for refunds, but surplus funds for unsuccessful bids are returned to investors within days of share allocation. Before investing, investors must review the exact policies implemented by their chosen broker or bank.

Listed companies can continue to trade their shares after a successful IPO appears on the ADX or DFM platform. Investors should understand the following: Investors can monitor the performance of their shares through their brokerage account tracking system. Most trading platforms have tools that help users set up price alerts and market trend monitoring functions. When IPO shares are listed, investors are free to hold them long-term for long-term returns or sell them upon listing. Stock prices may fluctuate based on market conditions, meaning investors must be prepared for this volatility. Investors face the decision of when to sell IPO shares, as they must decide whether to hold the shares for long-term value appreciation or trade them for short-term gains. Different strategies present unique dangers and specific advantages.

Any investor needs to assess the natural risks involved in IPO investments: The price volatility of IPO shares becomes significant after their listing, as market sentiment and investor behavior are determining factors. Due to the lack of recorded trading background data for IPOs, investment decisions for new stocks are riskier than buying existing stocks. When choosing an IPO investment, investors need to analyze the company's fundamentals and its future growth trajectory through research. Some institutional investors need to comply with stock liquidity restrictions that begin shortly after the initial public offering takes effect. UAE market regulations control IPO listings and define requirements for investor protection and compliance with business operation standards. All investors must pay attention to regulatory updates, as they may affect their portfolios.

The UAE government has launched several nationally sponsored IPOs to increase investment opportunities through the issuance of new shares. Recent notable IPOs include: Dubai Electricity and Water Authority (DEWA): This IPO became a key moment for privatization in the UAE, attracting widespread investor interest. Salik: This toll road operator used a widely publicized IPO step to showcase the government's initiatives in public sector operations improvement. ADNOC Gas: The company indicated through its IPO that the United Arab Emirates wants to develop its energy business while attracting international capital investment. Al Ansari Financial Services: This IPO highlighted the UAE's growing financial services market while gaining investment from retail and institutional buyers. Potential investors need to pay attention to upcoming IPO announcements issued by the DFM and ADX, especially in the banking, technology, energy, and infrastructure sectors. Understanding these potential opportunities will give investors an edge in the market competition.

The following are frequently asked questions about buying IPOs in the UAE: How do I subscribe to an IPO in the UAE? The subscription process is conducted through stock exchanges, as well as banks and brokerage firms, during a specific period. What documents are required to obtain a National Investor Number (NIN)? Individuals must submit their Emirates ID along with a completed application form to obtain their NIN. Are IPOs in the UAE open to foreign investors? When foreign investors meet the regulations set by the authorities, they can join IPOs in the UAE market. What risks are involved in IPO investment? The three main risks that investors face in this strategy include market volatility and uncertainty in company performance, as well as regulatory risks. Can I sell my IPO shares immediately after listing? The selling process may be affected by market variables and price changes. What are the best platforms for tracking upcoming IPOs in the UAE? The DFM and ADX, as well as brokerage platforms, distribute information about upcoming IPOs. Are there any government-backed IPOs planned in the UAE? Since the UAE government is committed to supporting economic development, many nationally supported IPOs are still being developed.

In conclusion, investing in IPOs in the UAE has potential profitability as it allows investors to expand their portfolio balance through emerging companies while gaining the opportunity to participate in newly established businesses. Understanding the UAE IPO process and requirements, as well as risk assessment, enables investors to make beneficial choices in the changing UAE IPO market. The success of IPO investments depends on an understanding of market evolution and prompt action taken in future periods.