The prospect for a renewed initial public offering activity in the GCC in 2011 is getting bleaker as the region’s markets tumbled in May with global turbulence depressing sentiments.
Global factors weighed down on the GCC with all the markets ending in red. The region’s markets were down in May, losing 6.1 per cent after a decrease of 3.2 per cent in April, a factor impacting the prospect of IPOs. “Lack of activity in the capital market, particularly over the past two months, will further discourage companies from going for IPO,” said Mohammed Ali Yasin, an Abu Dhabi-based capital market expert.
Analysts have been predicting a dismal scenario for the overall IPO volumes in the region in the backdrop of lacklustre market activity in May and April when the aggregate market cap reached $722 billion.
According to Kuwait Financial Centre, or Markaz trade volumes in the GCC decreased by 25 per cent while value traded decreased 38 per cent in May to $49 billion. This was on the back of 22 per cent month on month drop in volumes and 16 per cent decrease in value traded in April. Saudi Arabia, which accounted for 88 per cent of GCC’s total value traded, witnessed a 40 per cent drop in value traded, Markaz said.
Dubai shed 9.8 per cent in May, followed by Saudi Arabia which lost 7.7 per cent. Kuwait lost 2.2 per cent. The overall IPO volumes in the region fell well below their potential in the first five months as the GCC pressed ahead with a move to unify rules on initial public offering and common rules for listing of securities. Most analysts expect the IPO dismal trend to continue during 2012 with a number of significant offerings in the pipeline awaiting the right IPO window.
Although IPO activity improved in the first quarter 2012 compared to the same 2011 period, both IPO volumes and offering values fell behind by 33 per cent and 63 per cent respectively, compared to fourth quarter 2011, where three IPOs raised $212 million.
Two IPOs in the first quarter 2012 raised a total of $78 million and both hosted on Saudi Arabia’s Tadawul. The first few months of 2012 also saw NMC Health, a health-provider in the UAE, becoming the first Abu Dhabi based company to list on the premium-listing segment of the London Stock Exchange raising $187 million.
Yasin said the overwhelming response to the IPO of Bank Nizwa, Omani Islamic bank, in May was exceptional but did not signal a trend. The bank, attracted 1.77 billion of bids in its initial public offer of shares, 11 times the sum that it was raising.
In 2011, the GCC witnessed only eight initial public offerings compared to 14 in 2010 as capital markets in the Middle East and North Africa raised $893.9 million, posting a decline of nearly 70 per cent on the previous year as global IPO fundraising went down 45 per cent. The largest IPO of 2011 in Mena was the UAE’s Eshraq Properties ($229.1 million), followed by Saudi Arabia’s Hail Cement ($130.5 million) and United Electronic ($105.6 million).