GCC IPO market shows signs of life

12 July 2017

Adnoc’s potential listing of services business is an indication of continued recovery

The GCC’s initial public offering (IPO) market is showing signs of life after three rather lacklustre years.

The volatility brought on by the slumping oil prices dented investor confidence and forced companies looking for decent valuations to shelve their plans of public floats. Not much has changed for regional equity markets in terms of triggers for a consistent upward momentum after sharp slides in the aftermath of crude falling more than 50 per cent from mid-2014 peak of $115 a barrel. The economic outlook has not improved markedly either and oil price forecast is still what it was a year ago.

One could argue that fundamentally not much has changed for the IPO market’s revival and low-volume sluggish trade that has been the hallmark of most GCC bourses in recent months should prevails.

The current market conditions should, logically be, not very supportive for companies seeking higher valuations but the government-driven privatisation plans of state assets has given the IPO market the kick start it needed. The list of the government-controlled firms joining the IPO fray is growing, also encouraging some of the private sector issuers to revive their plans for public floats.

The latest state-owned company to considering selling a minority stake in some of its subsidiary businesses is Abu Dhabi National Oil Company (Adnoc). The oil and gas giant this week said it is planning to sell minority shares in its services businesses. Reports suggest that Adnoc could bring its services stations unit to the market and expects it to be valued as high as $14bn.

The shares would most likely be floated on Abu Dhabi Securities Market (ADX) and Adnoc may ultimately be able to get the value of $10bn for the business unit and raise $3bn in IPO proceeds.

Adnoc is the second UAE firm to announce a major IPO deal this year in the UAE after Emaar Properties last month said it plans to raise roughly $1.6bn from share sale of its real estate development business.

Saudi Arabia’s plans for Saudi Aramco IPO, potentially, the largest-ever share sale in the world, has certainly helped sentiment and encouraged other GCC state to consider selling minority stakes in firms in oil and gas firms and other sectors. Oman, has already indicated it is preparing for IPOs of companies from utilities, postal services, ports and transportations, oil and gas and drilling and mining sectors.

Assets outside the oil and gas sector in Kuwait, the UAE, and Saudi Arabia have also been lined up for equity capital market deals, which bodes well for the investors, who have been awaiting for a long time for quality assets to come to the market. The only could that hangs on this mini recovery in IPOs pipeline build up is the ongoing diplomatic spat between Qatar and its GCC peers.

Any worsening of the political crisis has the potential to seriously affect the market sentiment.

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