Recovery starts for IPOs in GCC

03 August 2015

Saudi Arabia sees most listing activity

The number of initial public offerings (IPOs) in the GCC began to recover in the second quarter of 2015, with four listings worth $1.15bn, or an average of $288m, according to a report by London-based PwC.

This suggests the beginning of a recovery from the first quarter, which saw just one IPO.

In the second quarter of 2014, there were seven IPOs, which raised an average of $129m each. The first half 2015 average IPO value, $267m, was 30 per cent higher than the first half of 2014 average of $206m.

The higher average value was mainly due to airport services provider Saudi Ground Services Company’s IPO, which raised $752m, according to the PwC report.

The Saudi Stock Exchange (Tadawul), was the most active market with three IPOs before it opened up to qualified foreign investors in June.

“It is perhaps too early to predict how the opening of the [Tadawul] to foreign investors will impact the number of IPOs,” says Steve Drake, head of capital markets and accounting advisory services at PwC. “We would expect the number to increase over time as foreign investors gain confidence in the KSA market.”

IPOs in the second quarter of 2015
CompanyMarketAmount raised ($m)
Saudi Ground Services CompanyTadawul (Saudi Arabia)752
Middle East Paper CompanyTadawul120
Saudi Company for HardwareTadawul134
Phoenix Power CompanyMuscat Securities Market (Oman)146
IPOs=Initial public offering. Source: PwC

The appetite for Oman’s Phoenix Power Company shares, traded on the Muscat Securities Market, showed a continuing strong appetite for power companies there. It raised $146m through a heavily oversubscribed IPO.

The UAE’s financial markets have had just one listing so far in 2015. Egypt’s Orascom Construction dual listed on the Egyptian Stock Exchange and Nasdaq Dubai (for trading only), raising $185m.

“In the UAE, we saw a change to the commercial company law allowing the minimum free-float percentage be reduced from 55 per cent to 30 per cent,” says Drake. “This change was in part to support the IPO market, although we are yet to see the impact of this change filtering through to new market issuances.”

The slowdown in IPO activity in the first quarter was caused by falling oil prices and regional instability. The deteriorating regional conditions hit investor confidence and increased volatility in equity markets.

The decision to go ahead with IPOs show that investor appetite is there for certain companies.

The third quarter is unlikely to see high levels in IPO activity due to the seasonal slowdown, but PwC expects a similar pipeline for the last quarter.

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