Appetite for initial public offerings (IPO) in the region are expected to pick up this year after a rally in equity markets and a disappointing first quarter for flotations.

During the first quarter, there were just two IPOs completed in the GCC, which raised just $78m, according to data from consultancy firm PricewaterhouseCoopers (PwC). Both were companies that listed on the Saudi Stock Exchange (Tadawul), the largest and most liquid exchange in the region.

This was an improvement on the same period last year, when only one IPO was completed, raising just $18m. It was a decline compared to the last quarter of 2011 although, with value and volume down by 33 per cent and 63 per cent respectively.

“Despite evidence of improved activity on some regional stock markets, overall IPO volumes in the region are well below their potential,” says Steve Drake, head of capital markets at PwC.

Drake expects things to improve later this year. “Saudi Arabia continue to lead the regional exchanges both in terms of volumes and amounts raised. We expect this trend to continue during 2012, with a number of significant offerings in the pipeline awaiting the right IPO window,” he says.

Bankers in the market echo this sentiment. “There could be another three big IPOs on the Tadawul this year,” says the head of capital markets at one Riyadh-based investment bank. Another banker in Riyadh estimates there could be five to seven. “There are 15 applications [to IPO] with the CMA [Capital Markets Authority] now, and we are working on five that are at various stages.”

Elsewhere in the region, the trend is more depressed. Bankers say they do not expect to see many IPOs across the rest of the GCC. Several companies are instead looking to IPO in other markets. The UAE-based NMC Health listed on the London Stock Exchange earlier this year, rather than one of its domestic markets. That was partly because of the dearth of liquidity on regional bourses. “We know of several companies that are looking to list outside the region because of concerns about liquidity,” says one adviser on IPOs at an international bank.

Although liquidity is now picking up, it may not result in a sudden increase in listings. “An IPO can take two years, so people don’t tend to wait too long for the right window, they just go for it,” says one investment banker based in Dubai. “But if the markets are performing strongly then it will get a lot more prospective issuers looking at going down that path.”

Most of the deals likely to happen this year are ones, which have been planned for the past few years and are only now beginning to come to the market.