Regional initial public offering activity expected to pick up

13 October 2013

Tadawul set to attract many flotations due to high liquidity and new cross-listing facility

Initial public offering (IPO) activity in the Middle East and North Africa (Mena) region is expected to increase in the coming months, according to Phil Gandier, Mena head of transaction advisory services at the UK’s EY (formerly known as Ernst & Young).

“We have seen an increase in the number of firms in the region contemplating IPOs in the coming months, so we expect activity to pick up,” he said.

In the third quarter of 2013, only one IPO (from Sembcorp Salalah Power and Water Company) was launched in the region, raising $137m. Low activity during the summer and Ramadan is not uncommon – last year, only one firm (City Cement) sold shares for the first time, raising $252.3m when it listed on the Saudi Stock Exchange (Tadawul).

“There is an appetite to invest in profitable local companies that have scale and pan-Arab operations,” said Gandier. “Within the Gulf, the Tadawul is expected to attract a large number of IPOs due to its high liquidity and the new facility of cross-listing for overseas corporates. Additionally, the UAE has also been promoting inward investment and continues to play a key role in attracting investment to the region. The Gulf region as a whole has many of the investment qualities that companies look for, such as solid fundamentals and strong demographic trends.”

In the future, he expects the relatively lower levels of liquidity in regional bourses compared to international markets to be a key challenge. Choosing to list on other exchanges may also present a challenge for the region’s stock markets, although this will depend on the sector and ‘go-to-market’ credentials of individual firms.

 

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