Ability to resolve debt issues will be key to reigniting retail investors’ appetite for initial public offerings
The Gulf region has not benefited from the record demand for share sales sweeping across emerging markets today.
Emerging market initial public offerings (IPO) outpaced offerings in developed countries in the third quarter of this year for the first time in at least a decade.
Global index provider MSCI’s emerging markets’ 21 countries raised $138bn through IPOs and additional sales, more than double the $62bn raised in industrialised countries.
The pace of initial public offerings (IPO) in Asia has climbed to a record level since the crisis, with companies raising $158bn so far in 2010. Hong Kong’s AIA Group and Coal India raised almost the same amount in October as the total from US equity sales in the first 10 months of 2010.
Meanwhile, the GCC states have generated $1.91bn from IPOs so far this year, down from $2.27bn in 2009, as debt concerns continue to weigh down markets. Weak retail investor appetite has resulted in three Gulf IPOs closing at the bottom of their price range in the second half of 2010. It also fell significantly short of the targeted amounts they were seeking to raise.
Consequently, an IPO by the UAE mobile phone retailer Axiom Telecom, which is due to close on 3 December, is being offered only to institutional investors.
The UAE government passing a law to reduce the minimum stake for a company listing to 20-30 per cent from the current 55 per cent should help to address the concerns of family businesses.
With Gulf markets suffering from low liquidity, it is important new companies are added to exchanges to keep investor interest alive.
But reigniting retail appetite for IPOs is a harder task and will be determined by the region’s ability to resolve its debt crisis to regain the trust and confidence of investors.