Hopes for a recovery in the Gulf region’s IPO market are growing as local bourses show renewed signs of life and potential issuers, emboldened by relatively stable local economies, show tentative interest in stock market listings again.
After a relative drought in share sales over the past two years, IPOs in the Gulf region are on the rise again. Middle Eastern and North African companies raised a total of $1.37bn in the first six months via IPOs compared to $396.47mn in the first half of 2011, according to Ernst & Young.
Companies which have recently shown an interest in an IPO include Dubai-based family conglomerate Al Habtoor Group which is aiming to raise $1.6bn, Saudi Arabian Airlines subsidiary Saudi Ground Services and Oman’s Al Izz Islamic Bank which is set to launch its offering later this month.
“The drivers for private companies to go public remain strong whether it is to use an IPO to corporatise a family group, a private equity fund monetising or a corporate tapping the market for growth capital,” said Michael Bevan, managing director of Equity Capital Markets at HSBC for the Middle East and Africa.
Another reason for companies to list, bankers say, is that some need to repay debt amassed during the pre-crisis years or raise new capital to fund expansion plans abroad.
Some IPO plans, for example three international telecom operators in Iraq, are the result of legal obligations but overall the renewed interest to list reflects the growth prospects in places such as Saudi Arabia and to a lesser extent United Arab Emirates where liquidity is nevertheless returning to capital markets, say bankers.
Moreover, regional stock markets have rallied since the start of this year. Dubai’s DFM General Index is up about 16% and Saudi’s benchmark Tadawul Index has stacked on a little over 10%, both the beneficiaries of a rebound in economic activity and in Dubai’s case the resolution of some large debt restructurings.
Perhaps more encouragingly, the average combined daily turnover of all stock markets in the Gulf has almost doubled compared to last year, according to data from Zawya.com.
“When people see markets active again, they are ready to push the button. Opportunities remain for quality companies to IPO in the second half of 2012 and in 2013,” said Christopher Laing, a managing director in Emerging Markets Equity Capital Markets at Deutsche Bank.
The prospect of Saudi Arabia opening up its stock market to direct foreign investment and the possibility of Qatar and UAE bourses being upgraded by index compiler MSCI have also boosted sentiment and could spur more international money from institutions to the region.
While an uncertain global economic backdrop might deter some firms from pursuing an IPO, local economies, cushioned by vast petrodollar wealth, remain in relatively good health compared with the ailing eurozone and the US.
In fact, some investors from Europe are looking to invest in the U.A.E. as a result of the eurozone’s woes, claimed Al Habtoor Group chairman Khalaf al-Habtoor this week.
“This is a sign of trust in the financial security of this country. The UAE is not as big as China and therefore we can take care and control our problems,” Habtoor told Zawya Dow Jones.
Economics aside, some experts point to the minimum float regulations of the main bourses in Abu Dhabi and Dubai where companies are required to list at least 55% of their shares, forcing owners to relinquish control, as one of the main obstacles for companies to list.
“One of the key inhibitors to listing is the free float requirement. If that came down to a level whereby companies don’t have to give up control, that would likely help kick-start the market,” said Steve Drake, Head of PwC Capital Markets Middle East.