Dubai: Initial public offerings (IPOs), which have recently slowed down due to unstable political conditions and volatile global equity markets, are expected to decline further in the next several weeks owing to the lull during Ramadan, experts told Gulf News.
The holiest month of the Islamic calendar, which this year kicked off on July 10, is traditionally a sleepy period for businesses in the Muslim world.
The regional stock exchanges typically see trading volumes decline as work hours are reduced and both investors and companies hold off any major decisions until after the month of fasting is over. And with Ramadan now falling smack bang in the middle of summer, companies are even more hesitant to make a new offer to sell their shares publicly.
“We tend not to see IPO activity during Ramadan,” said Steve Drake, head of PricewaterhouseCoopers’ capital markets business in the Middle East region.
Shailesh Dash, CEO of Al Masah Capital, said investment banks don’t normally come to the market with an IPO during the holy month as business slows down for people to take time to practise their faith.
Volumes dry up
“When Ramadan falls in the summer months, it is even more reason not to bring IPOs to the market as volumes dry up, making it very difficult to raise any money for the new issue,” Dash told Gulf News.
The aggregate value of IPO offerings in the GCC region has declined significantly in the second quarter of 2013 due to political instability in some parts of the Middle East and volatility in global equity markets. Public offerings dropped by about 86 per cent from $337 million (Dh1.2 billion) in the first quarter of the year to only $48 million in the last quarter.
Drake earlier noted that concerns over the economic slowdown in certain global markets and the political instability in Egypt and other countries in the Middle East appeared to have dampened investor appetite and contributed to the low offering values.
Despite the slowdown, Dash pointed out that the IPO market in the region has already recovered since 2009. He noted that last year, the GCC had four IPOs listed on local exchanges, three in Saudi Arabia and one in Oman with a total value of $825 million raised.
“There are also five pending IPOs, three for Saudi, one in Qatar and one for Oman. Listings from the region on foreign exchanges have mainly come from the UAE, with one company listing on the London Stock Exchange and another on the New York Stock Exchange, with total capital of $468 million raised,” Dash said.
Key drivers
The region’s pursuit for economic developments is one of the key drivers of the IPO market.
“Spending on infrastructure and tourism bring increasing numbers of people who want to work and visit the GCC every year. As demand for goods and services grow due to the influx of people, businesses seek more capital to expand capacity to cater to those increasing demands and some of these businesses will decide that pursuing an IPO is the best way for them to raise this investment capital,” Dash said.
