Market cautious about Gulf IPO pipeline

09 February 2015

Saudi Arabia and Egypt strongest growth markets

Investor appetite for initial public offerings (IPOs) has weakened in some Gulf markets due to concerns about low oil prices and the subsequent stock market declines.

“Market sentiment seems to fall as valuations fall and depressed valuations often means a lack of issuance,” says Steve Drake, partner, head of capital markets at global consultancy firm PWC, based in Dubai.

Drake said he was “cautious” about the IPO pipeline in the UAE for 2015, saying the first quarter will be a good indicator for the rest of the year in terms of how many offerings will come to market.  

He was speaking to MEED after Abu Dhabi-based logistics and vehicle solutions company Massar cited oil price volatility and low investor appetite for its decision to postpone its IPO in early February.

Drake says he is more “bullish” about Saudi Arabia’s IPO market saying the kingdom is more resilient to fluctuations in the oil prices.

The Gulf country has high levels of reserves, with foreign reserves currently exceeding $700bn. The government is also maintaining its spending plans which have bolstered investor confidence.

“Even if share prices do fall, it still tends not to put off issuers in the kingdom in the same way it does in the UAE,” Drake says.

“We see fresh issuers starting processes irrespective of oil price levels,” he says, adding that there are between 30 to 35 offerings currently in the Capital Market Authority (CMA) review process.

Egypt is another key market for IPOs as the country’s economy stabilises and draws in investors.

“There could be more listing activity in Egypt than some of the other Gulf countries this year,” he says.

One company seeking to list on the North African country’s exchange is Orascom Construction, a spin-off from the Amsterdam-listed OCI owned by Egyptian billionaire Nassef Sawiris.

Last year, the Gulf’s IPO market rebounded after years of stagnation. In the fourth quarter of 2014 alone, there were a total of five IPOs in the GCC raising $7.3bn.

This compares to just three IPOs raised in the same quarter in 2013 raising $179m.

The largest IPO in 2014 was Saudi Arabia’s $6bn offering by National Commercial Bank (NCB).

Dubai Parks and Resorts and healthcare start-up Amanat Holdings also listed on the Dubai Financial Market at the end of 2014.

As of 9 February, the DFM stands at 3,893.36 index points, a decline of 17.8 per cent from the 4,734.76 level recorded six months ago.

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