Another strong year in sight for the Gulf IPO market

Dubai: Another strong year is in sight for the Initial Public Offering (IPO) market.

Companies in the Gulf raised $3.3 billion (Dh12 billion) in 2017 through 28 IPOs compared to 4 in 2017 boosted by positive economic outlook in the backdrop of a recovery in oil prices.

The markets also witnessed the stellar IPO of Emaar Development, which raised $1.3 billion, the biggest primary offering in the region after National Commercial Bank, which raised $6 billion in 2014. Adnoc Distribution listed on the Abu Dhabi Securities Exchange also raised $850.9 million last year. The UAE had the highest number among the Mena countries with $2.2 billion of capital raised compared to $3.5 billion in the region last year.

“2018 could well be another very strong year for equity capital issuance. More than 30 companies in the Gulf are expected to go public in 2018 — majority of them from Saudi Arabia and the UAE,” Vrajesh Bhandari, portfolio manager at Al Mal Capital told Gulf News.

Momentum

“The IPO activity is poised for further growth in 2018, especially with government and quasi-government owned assets preparing to go public in Kuwait, Egypt, KSA and the UAE. The IPO activity in the region is likely to see a mix of local and international floatings. In addition, family owned, owner managed, and private equity-backed businesses are also signalling their intention to go to the market during 2018; this again could include a combination of local and international offerings of different sizes,” Gregory Hughes, Mena IPO Leader, EY said.

According to EY, the Mena IPO activity is expected to gain momentum in 2018 bolstered by economic reforms and privatisation drive of countries such as Saudi Arabia and Egypt. This, coupled with improved oil prices, favourable government initiatives and strong investor appetite, is likely to spur more listings in Mena, especially from leading regional government-entities.

The biggest of them being Aramco, which is touted to be the region and the world’s largest and expected to raise $75 billion after selling 5 per cent stake, valuing the company at $1.5 trillion.

The market capitalisation of Aramco will be almost twice that of Apple Inc, four times bigger than Exxon Mobil Co and at least one-fifth of the $5.8 trillion MSCI Emerging Markets Index, the benchmark for emerging markets, according to reports.

The market is also expected witness the IPO of Emirates Global Aluminum, Abu Dhabi Ports, Senaat, Gems Education, Dar Al Arkan’s unit, ACWA Power Saudi, Kuwait Stock Exchange and some power companies in Oman.

“From a portfolio standpoint, increased depth and breadth would allow a wider selection of stocks for fund managers. This will lead to more efficient construction and diversified portfolios. Currently, the market capitalisation is largely comprise of Banks, Real Estate and Telecoms- over time, we expect other sectors to garner their fair share,” Bhandari said.

The Dubai Financial Market and the Abu Dhabi Securities Exchange have always been proactive in terms of trying to get more family owned businesses listed on the stock exchanges to offer a diversification benefit for shareholders.

Saudi impact

The primary market will be also boosted by the inclusion of Saudi equities into the emerging market indices of FTSE Russell and the MSCI.

This action can result in an inflow of a minimum of $45-46 billion (Dh165-Dh169 billion) post the potential FTSE Russell and MSCI emerging market index upgrade, which is about 10 per cent of the market capitalisation of the market, an Emirates NBD Asset Management executive said.

As pre-emptive measures, the Saudi regulator has been taking a number of steps for inclusion in the emerging market index such as making changes to the settlement cycle, and lowering the assets under management for foreigners to trade in the equity market.

“The CMA’s recent updates could encourage more small and mid-cap companies to go public in 2018, leading to a rebound in IPO listings on NOMU alone. The IPO activity pipeline for the UAE, Kuwait, and Egypt also looks promising with major government-owned firms announcing their plans to go public within the next two years,” Mayur Pau, Mena Financial Services IPO Leader, EY, said.

In all, more need to be done to spruce up the market.

“Stock markets in the Gulf require more representation of the underlying economy — for example in the case of Dubai, plays on trade & tourism — such as hypermarkets, luxury/ multiline retailers (MAF, Landmark Group), Emirates airlines and Flydubai, Jumeirah Hospitality as well as food businesses (dairy, juice). We hope the benefits of listing [raising capital, public awareness, transparency & discipline] will bring in more of the family owned, owner managed, and private equity-backed businesses to the market,” Bhandari from Al Mal Capital said.