Dubai: The GCC capital market activity is seen picking up as the regional economies have transitioned to a ‘new normal’ characterised by uncertainties, according to Pwc’s GCC Capital Markets Watch survey.
“GCC IPOs [initial public offerings] have resumed albeit with limited activity. In contrast, the debt market has been highly active and we expect the debt market activity to continue in the near future,” said Mohamed ElBorno, Partner, Head of Assurance at PwC Middle East.
Resilient primary market
Despite the uncertainties experienced in 2020 due to the pandemic, GCC witnessed seven IPOs totalling $1.6 billion in proceeds.
Tadawul continued to be the most active GCC stock market in 2020 contributing 86 per cent of the total proceeds raised and 57 per cent of the number of listings.
Fall in economic growth rates and oil prices led to an extremely active debt market throughout the year with a number of GCC governments issuing multi-billion sovereign debt. Nasdaq Dubai experienced record sukuk and bond listings worth $18.4bn during the year.
“It is encouraging to see some GCC IPO activities after a pause in Q2. In the past, Q3s had typically been the quiet quarter. Q3 2020, however, had benefited from the buildup of a backlog over Q2 2020 driven by COVID-19’s impact worldwide. This resulted in 3 IPOs across two GCC countries, raising $325 million compared to USD 93 million in Q3 2019,” said ElBorno.
UAE, Saudi initiatives
During 2020, Saudi Arabia and UAE took some key initiatives to facilitate equity capital market activities on their respective stock exchanges:
While Tadawul launched its first Derivative Market in the third quarter to gain access to a broader spectrum of local and international investors, Saudi Arabia’s Capital Market Authority approved the direct listing of Saudi White Cement Company on the Nomu Parallel Market, enabling Tadawul to become the first GCC exchange to allow direct listings (listings of shares without an offering), with the advantage of less time, cost and effort for entrants.
In the UAE, Nasdaq Dubai launched a Growth Market aimed at small and medium-sized companies. It has more relaxed requirements compared to the main board, providing more flexible options to raise capital through IPO.
Nasdaq Dubai also signed a cooperation agreement with Hong Kong based Zhongtai Financial International and Beijing Tian Tai Law Firm to encourage and support Chinese companies to list on the exchange.
Abu Dhabi Securities Exchange’s Second Market – Parallel has emerged as a popular choice during the second half of the year with four listings raising proceeds totalling $90 million. The Second Market - Parallel allows investors to trade securities of private companies.
Surge in debt issuance
As GCC economies are dependent on oil revenue, as expected, reduction in oil price prompted sovereign treasurers to inject funds into the local economies through debt financing resulting in 6 sovereign issuances in the second half of the year from Saudi Arabia, the Emirate of Abu Dhabi, the Emirate of Dubai, the Emirate of Sharjah, the Kingdom of Bahrain and the Sultanate of Oman.
Saudi Arabia issued $10 billion worth of sukuks and the Emirate of Abu Dhabi issued a bond worth $5 billion. The Department of Finance (DOF) representing the Government of Dubai listed a 10-year Islamic Sukuk worth $1 billion at a coupon rate of 2.76 per cent and thirty-year government bonds of $1 billion at coupon rate of 4 per cent.
This period also witnessed some sizable corporate issuances including the $1.5 billion sukuk by DP World in July 2020. This represents the largest outstanding emerging markets US dollar corporate subordinated hybrid, the largest hybrid sukuk offering, and is DP World’s inaugural perpetual issuance.
DP World’s debt listings now total over $10 billion on Nasdaq Dubai. In addition, China Construction Bank listed two green bonds on Nasdaq Dubai totalling $1.2 billion to support its efforts to combat climate change. Dubai Islamic Bank issued a $1 billion Additional Tier 1 (AT1) sukuk on Nasdaq Dubai at a yield of 4.625 per cent, the lowest yield ever for a bank on an AT1 sukuk.