The initial public offering of Addar Real Estate Services has stunned Gulf markets with a record 458 times oversubscription.

Despite a brief delay in processing due to the death of UAE president Sheikh Zayed bin Sultan Al Nahyan, the Abu Dhabi-based property developer’s offering had received bids of $103bn when it closed on November 25, even though the value of the 55% of equity it was selling totalled just $225m.

The bidding frenzy followed a year in which IPO records tumbled across the Gulf Co-operation Council region. With a strong series of IPOs in the pipeline for 2005, local bankers are expecting an equally bullish year ahead.

Co-managed by the state Abu Dhabi Investment Company and The National Investor, a privately-held investment bank, the Addar IPO attracted 21,000 UAE national subscribers. It was not open to foreigners. Managers said this restriction was due to anticipated demand, because IPOs are routinely oversubscribed in the Gulf.

Local players National Bank of Abu Dhabi, Abu Dhabi Islamic Bank, Union National Bank and First Gulf Bank were the receiving banks.

Confidence in Addar’s future is strong both because the remaining 45% of equity is held by influential local businessmen and royals, and because investors expect Abu Dhabi to liberalise the real estate market in the near future.

In neighbouring Dubai, the shares of property developer Emaar have been soaring on the city’s bourse since the emirate permitted foreigners to own freehold property in 2002. Emaar has since been building apartment blocks and villas at a frenetic pace, and, if Abu Dhabi followed Dubai’s lead, Addar would be well positioned to capitalise on foreign investment inflows.

On a more bearish note, however, analysts expressed concern about the high degree of leverage offered to subscribers. The bid total exceeds the UAE’s GDP by $23bn and, with banks offering leverage of up to 24 times for the IPO, about 80% of subscriptions are estimated to have been backed by loans.

Local investors have been grumbling about a 0.5% processing fee that lenders added to commissions, leading to accusations in local papers that the banks that offered IPO loans had cleared more than $500m in extra charges from bidders.

The government quickly took note and issued an edict that banks could only charge interest for loans advanced against subscriptions for 15 days from the closing date. It ordered that all excess subscriptions should be refunded no later than December 26.

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