Kuwait has approved plans to split its $7bn metro project into six different contracts, meaning that for this project alone there will be five different initial public offerings (IPOs) taking place over the coming years.
With an additional district cooling company associated with the project also under consideration, a sixth IPO could be required.
All this is part of Kuwait’s ambitious privatisation plans that could include up to 32 different projects, raising a total of about $28bn. Undoubtedly these will be spread over a long time, but the influx of new companies forced to list on the Kuwait Stock Exchange (KSE) will raise concerns about the capacity of the market to cope with it.
Since the start of 2011, the main index of the KSE has fallen by about 12 per cent. Investment firms, of which there are more than 50, make up the bulk of the listed companies, but have been beset by debt problems since the financial crisis. Their shares still languish after collapsing in 2008.
Despite being one of the oldest and largest exchanges in the region, Kuwait has long lacked a strong regulatory framework. That could be changing with the establishment of the Capital Markets Authority (CMA) in mid-2011 to help clean up the exchange. The KSE itself will even be sold off in an IPO.
A wave of new IPOs may not help the market. Especially as many of the flotations forced by the privatisation rules will carry some kind of Kuwait government guarantee or offtake agreement. Instead, they may serve as simply another means for the government to redistribute wealth to the people.
For the IPOs to be really successful, the CMA will have to show it has the teeth to clean up the exchange, which will help attract a wider variety of investors and generate the liquidity all these flotations need.