IPO causes market correction

16 December 2005
The Doha Securities Market (DSM) was becalmed in December as investors saved their funds for the primary market. The slight correction in prices is no bad thing as the bourse, which is up by more than 70 per cent since the start of the year, is widely considered to be overheated. However, the fundamentals of the blue chips remain strong.

The initial public offering (IPO) of 55 per cent of shares in newly formed QR 2,000 million ($549.3 million) local real estate company Barwawas launched on 8 December and extends until 18 December (see Banking & Finance). 'The share offering has sucked liquidity from the market as people sell their existing holdings in order to free up funds to participate in the IPO,' says a Doha-based analyst. Qatari Diar Real Estate Investment Companyowns the remaining 45 per cent of the company's shares.

Another newly-formed local firm, Gulf Cement Company, is due to sell 80 per cent of its QR 800 million ($213.9 million) capital in April. As with Barwa, it will initially be open only to nationals. The IPO activity should help take some of the heat out of the secondary market. Valuations have decreased significantly already during the year. The average price/earnings (PE) ratio is running at about 25.7, compared with close to 50 at the start of the year, as a result of listed companies consistently posting strong quarterly results. 'Shares are now reasonably priced, having started the year at crazy levels,' says the analyst. Nevertheless, there are exceptions. Qatar Gas Transportation Company (Nakilat)has a PE ratio in excess of 600, while Qatar Meat & Livestock Company (Mawashee)is at negative 1,230.

The banking sector is performing particularly strongly. Commercial Bank of Qatar (CBQ)was among the fastest advancers in the week to 8 December, up by 17 per cent. The bank has recently completed a QR 2,240 million ($598.9 million) rights issue to increase capital by 25 per cent, which closed significantly oversubscribed and will be used partly to fund the acquisition of a strategic stake in National Bank of Oman. The eyes of the local banks are on plans for the establishment in 2006 of two major new financial institutions in the country, a $2,000 million Islamic bank and a $1,000 million conventional institution. Shares in new brokerage company Dilalahave been performing well since the recent announcement by the authorities that, as planned, the brokerage services of the local banks will be transferred to the greenfield firm.

'Banks will continue to do well into the new year as they get the opportunity to participate in the financing of major projects, in the gas and power sectors, for example,' says the analyst. 'The shipping firms - Qatar Shipping Company, Qatar Navigationand Nakilat - are also likely to perform strongly as fleets keep expanding. Valuations appear stretched but the market just keeps rising and investor sentiment is still extremely positive.'


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