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Barka Desalination IPO attracts strong interest from investors

30 Jan 2022 By OUR CORRESPONDENT

Muscat – With the commencement of the phase 1 (book-building process) of its initial public offering (IPO), Barka Desalination Company (BDC) has said that the investors interest in its IPO is gaining momentum.

BDC, alongside the issue manager Bank Muscat Investment Banking, has been holding several meetings with key investors for the phase 1 of the IPO. The meetings were conducted with more than 50 key investors from Oman as well as the region with some meeting being conducted in Muscat while others through a virtual session.

Phase 1 of the IPO opened for subscription by investors on Sunday and will close on February 3. During phase 1 of the IPO the offer price will be discovered through book-building mechanism based on bids submitted by large and sophisticated investors in the sultanate. Investors will be able to see the progress of the IPO live on the Muscat Stock Exchange website.

Investors need to apply for a minimum of 250,100 shares in phase 1 of the IPO. Following the successful close of the first phase and discovery of the offer price, the IPO will be offered to retail investors at a fixed price through the e-IPO route.

During the meetings, investors appreciated a number of aspects for BDC including its long-term offtake agreement (until 2038) with Oman Power and Water Procurement Company (OPWP), resilient demand for water in the country and dividend yield (in the range of 8.4 – 10.6 per cent) being offered to the IPO investors.

Investors commended that the project has marquee founders including Engie, Itochu, Suez and WJ Towell, who have strong track record and deep commitment to the project. They also appreciated the commitment by two leading names – National Power & Water Co (an investment arm of Bahwan Engineering Group) and Bank Muscat to participate in the IPO as anchor investors and confirming their interest at the price of 145bz per share i.e. at the highest end of the book-building price range.

BDC also had meetings with key research analysts in Oman, who are expected to issue research reports on the IPO.

Ubhar Capital, which has already released their report on January 24, has recommended a ‘subscribe’ rating for the IPO with fair value of 160bz per share, implying an upside of 10 per cent to the higher end of the IPO price range and 39 per cent to the lower end of the price range.

Ubhar Capital report mentioned, ‘BDC is an attractive dividend-paying company with steady revenues over the water purchase agreement. We believe BDC deserves a premium as equity-holders are treated differently in this company.’

Backed by revenues contracted by the government of Oman up to 2038, BDC plans to offer the shares in a price range of 115bz to 145bz which translates into an attractive dividend yield of 8.4 per cent to 10.6 per cent to IPO investors. The first proposed dividend of 6bz per share will be paid in April 2022, soon after the close of the IPO.

In a press statement, BDC’s chairman Murtadha Sultan said, “BDC has taken steps to strengthen the dividend case for its public investors. The company does not have any cash-sweep obligations in their financing arrangement with the senior lenders. Further, the founding shareholders have provided certain loans to BDC the payments for which would be subordinated to BDC’s regular dividend to shareholders including public investors. This will provide further cushion to the company’s dividend profile.”

Commenting on the phase 1 of the subscription period, Patrick Thienpont, CEO of BDC, said, “The IPO of Barka Desalination presents a unique and compelling opportunity backed by a consortium of marquee founder shareholders, a robust contractual framework, attractive dividend yield, and investing in a strategic asset employing proven technology driven by a strong and experienced management team. We are confident that investors will see the investment case presented by BDC and join our journey of success.”

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