Demand for IPOs to rise in Mideast

Dubai: Surging petrodollar liquidity, robust eight per cent GDP growth and economic liberalisation in the region is set to fuel the demand for initial public offerings (IPO), according to analysts.

The burgeoning Middle East IPO pipeline shows few residual effects from the regional stock market crash of 2006. In the crash four out of seven exchanges lost more than 35 per cent in value. Despite the lacklustre secondary market, the demand for primary issues continues to remain strong, according to Ernst & Young.

"Tightly controlled by regulatory authorities, the Middle East IPO markets are becoming less volatile because the regulators are learning and developing quickly," said Phil Gandier, Middle East IPO leader of Ernst & Young.

The IPO market started the first quarter of 2008 strongly, with 13 companies raising $3.8 billion. In the second quarter, 13 firms raised $4.72 billion.

"There were 52 IPOs during 2007 and in the first half of 2008 there have been 26. The total capital raised in the first half of 2008 amounted to $8.69 billion compared to $4.83 billion from 33 IPOs during the same period last year," said Azhar Zafar, head of mergers and acquisitions, Ernst & Young Middle East.

The trend in the market is fewer but larger IPOs. Although the drop in number and amount of capital raised in IPOs has been more severe in mature global markets, the region has shown some resilience as a result of liquidity created on the back of record oil prices. In addition, analysts said liberalisation of rules on foreign participation in the markets is also helping the revival.

Right direction

"The regional regulations are moving in the right direction in most of the Gulf markets. Things are becoming a lot easier from an ownership point of view and what can be offered to the public in terms of percentage of total shares. With abundant liquidity the outlook for the region looks very promising," Kerim Mitri, Deputy CEO of Shuaa Capital, told Gulf News.

The valuations and earnings multiples of Middle East companies have been strengthened by the robust economies. With the changing investor perceptions, companies that have either withdrawn or postponed IPOs could consider going public.