Dubai: Plunging crude oil prices may delay the initial public offerings (IPOs) in the GCC as valuations remains compressed, market participants said.
Last year, about 6 companies got listed on the local exchange after a hiatus of 5 years in which investors poured billion of dollars looking at the underlying strength of the UAE economy. In the wider Middle East and North Africa (Mena) region, companies raised $11.5 billion in 2014 through 27 IPOs, almost four times more than the $3 billion raised in 2013 through 25 IPOs.
However, investor sentiment has taken a hit due to falling oil prices, which may trigger a delay in primary market issuances.
“Falling oil prices would indirectly impact investor sentiment and possible slowing of overall economic growth. If there is a negative market overall it would impact the appetite for IPO’s. Primary offerings may get delayed due to a fall in overall market valuations,” Saleem Khokhar, head of equities at National Bank of Abu Dhabi’s asset management group told Gulf News.
The falling prices of crude oil, which fell more than 50 per cent last year, would impact sentiment indirectly, Khokhar said.
Shares of Amanat, a green field company, and brown field company, Dubai Parks and Resorts, which were listed in the fag end of 2014, fell on the day of listing as falling crude oil prices impacted sentiment. On Wednesday, Amanat closed trade at Dh0.78, much below its listing price on Wednesday, while Dubai Parks and Resorts closed lower at Dh0.697, down from its listing price of Dh1.
However, among the successful IPOs was Emaar Malls Group, which raised $1.6 million, and was heavily oversubscribed over 30 times.
Conditions to improve
“As stock markets have come off, it has become less attractive to IPO. However, we expect market conditions for IPOs to strongly improve as the market has found new support levels, has reverted from being oversold back in December and we expect market volatility to further subside,” Jaap Meijer, managing director with Arqaam Capital told Gulf News.
To curb volatility, the capital markets regulator asked stock brokers to sell off shares in the account of the trader is unable to replenish the shortfall in margin within two days, and reiterated that short selling of securities were not allowed.
The central bank board has also upped the ante by asking banks to study about margin lending by banks, which many analysts and traders believe led to the aggravated downfall in markets.
In the wider MENA region, capital markets have been introducing new reforms and relaxing their rules in an attempt to encourage local companies to consider domestic IPOs. The Saudi Tadawul’s recent announcement to open its stock market to direct investment by foreign financial institutions is likely to raise its profile on the international scene.
