Dubai: UAE could see curtailed IPO activity in the first half of 2015 as falling oil prices keep the valuations and appetite in check, regional head of capital markets at PricewaterhouseCoopers (PwC) told Gulf News.
The UAE witnessed robust offerings in the primary market in 2015 with listing of blue chips like Emaar Malls Group, Dubai Parks and Resorts. In the wider Middle East and North Africa (Mena) region, companies raised $11.5 billion (Dh42.2 billion) in 2014 through 27 IPOs, almost four times more than the $3 billion raised in 2013 through 25 IPOs.
“There are couple of IPO’s slated to list during the first quarter of this year and let’s see if there is appetite to invest in them. We will probably see reduced market activity in the UAE during the course of the first half of this year. If oil prices do lift and valuations do come back, we might see other entities coming back to market, but I’m cautious about that,” Steve Drake, head of capital markets in the Middle East region, PwC told Gulf News.
IPO activity came back in 2014, after a hiatus of 5 years coming on the back of improved valuations, before crude oil witnessed wild swings in prices, denting the appetite from investors, who faced the brunt. “The IPO window was open for a very short period of time after the fall in oil prices, probably even cooling of IPO activity,” said Drake.
“Some of issuance that we saw like Emaar Malls Group and Dubai Parks and Resorts demonstrated that there was appetite for some big ticket offerings, which demonstrated that the level of liquidity to support that offerings was there in the market,” said Drake.
“The markets in UAE has proved that appetite to invest in equity is very linked to equity valuations as soon as we saw a fall in those valuations, which everyone argued was linked to the fall in oil price,” said Drake.
Bullish on Saudi IPO market:
However, Saudi Arabia, which is the biggest economy in the region, may witness robust activity in the primary market.
“IPO activity is dependent to oil price movement, but because the Saudi government has the ability to rise out short term price movement in crude and they have already committed to continue its spend on infrastructure, health care, etc. That would give the level of stability required in the market, I would expect activity to continue in IPO market. I would be quiet bullish on IPO market in Saudi,” said Drake.
Saudi Arabia saw the biggest ‘landmark’ offering in the primary market with $6 billion IPO, the second biggest after China’s Alibaba.
Saudi Arabia plans to give out lavish freebies to employees, in an attempt to reassure financial markets that the government is not slashing expenditure in the face of low oil prices.
Saudi Arabia, along with the UAE budgeted for higher spending in 2015 despite falling revenues from oil prices, which have almost halved compared to last year.
“The reality on ground due to falling oil prices is different from perception. My expectations is that those economies would continue to perform, but my assumption is that we might see less cross border transactions and less interest from international community for investments,” said Drake.
PwC is also optimistic on regional debt market. “We have seen an increase year on year on the amount of corporate debt that has been issued in conventional or sukuk form. I don’t expect that demand to dampen. These entities have significant spend commitments so therefore they would continue to need to finance that spend. So I don’t expect to see that slowdown because of the nature of entities issuing the debt,” said Drake.
