Financial turmoil in US dampens demand for rights issues

19 September 2008
The number of rights issues on the Gulf’s main equity markets is expected to fall sharply over the coming year, in part because of the crisis in the US financial sector.

GCC-listed companies raised a record $15.8bn through rights issues in the 12 months to the end of June, but this activity is expected to be scaled back over the 12 months to the end of June 2009.

Industry experts predict the collapse of the US banking market will impact on the demand for rights issues across the region. “The scale of rights issues in most equity markets in the region is declining,” says Walid Shihabi, head of research at UAE bank Shuaa Capital. “It would be naive to suggest that Lehman Brothers will not have an impact,” says Andrew Rae, partner at UK law firm Trowers & Hamlins.

Saudi stock market regulator the Capital Market Authority approved three rights issues on 15 September, the same day Lehman Brothers filed for bankruptcy protection, but few companies are expected to follow in the coming months. The three companies that made the rights issues - Etihad Etisalat, the local arm of UAE telecoms giant Etisalat, Dar al-Arkan Real Estate and Saudi Arabia Refineries - plan to raise SR4.8bn ($1.25bn) between them.

Saudi Arabia’s listed companies have a greater need for fresh equity because they are building their balance sheets to prepare for the expected boom in the kingdom’s real estate sector, says Rae.

Many of the larger listed companies elsewhere in the Gulf have relatively little need of further rights issues because of the record amount raised over the past year.

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