In a year that’s seen the worst slump in initial public offerings since the financial crisis, investment bankers covering deals in the Middle East are busier than ever.
As listings dwindle in London, Hong Kong and New York, the UAE and Riyadh have emerged as new IPO hotspots buoyed by high oil prices and investor inflows. Listings in the region have fetched $22.6 billion this year - over half of the proceeds in Europe, the Middle East and Africa. Investor demand is strong, with this week’s dual listing of Americana Restaurants International Plc drawing $105 billion of orders for its $1.8 billion offering.
To handle the flurry of activity, global banks are drafting in otherwise idle teams in places like London to help, relocating staff or expanding. Goldman Sachs Group Inc. and JPMorgan Chase & Co.’s top IPO bankers for emerging markets in EMEA are spending more time in the region. Citigroup Inc., meanwhile, has boosted its regional investment banking team by 50 per cent over the past two years.
“We always fly in specialists,” Miguel Azevedo, head of investment banking for the Middle East and Africa at Citigroup, said in a recent interview with Bloomberg TV. “I can tell you that the region has been the favorite destination for most of my colleagues over the last 12 months for sure.”
The Middle East frenzy - which has seen 42 regional listings in just over 11 months - is all the more significant given that new offerings are almost at a standstill in other financial centres as market volatility and rising interest rates impact deals. Eight out of this year’s 10 largest IPOs in EMEA are in the Gulf, setting the region on course for its second-best year for share sales, eclipsed only by 2019 when Aramco pulled off its record $29.4 billion listing. And the rush of deals is showing no sign of slowing.
London, meanwhile, is having its worst year since 2009.
Things aren’t much better in Europe where many offerings - like Eni SpA’s multibillion-dollar renewables arm and the $750 million listing of ABB Ltd.’s electric-car charging business - have been postponed because of market turmoil. Globally, the amount raised from IPOs this year has slumped 68 per cent from a year earlier, the worst annual drop since 2008 when offerings fell 73 per cent, according to data compiled by Bloomberg.
Global cuts
In a sign of how much the global dealmaking drought has taken hold of the wider financial industry, Wall Street firms such as Morgan Stanley, Goldman Sachs and Citigroup are cutting investment banking jobs, including equity capital market (ECM) specialists, in places like Asia. In Hong Kong, IPO proceeds have dropped 69 per cent as the market reels from the effects of China’s Covid Zero policy and the travails of its property sector.
By contrast, the Middle East is attracting more interest - and bankers - to capture the flow of funds. A growing number of hedge funds are expanding in Dubai as other financial hubs like Hong Kong lose their appeal. Top US banks are regularly bringing fund managers to Saudi Arabia and UAE to meet the flood of companies looking to go public.
The region “has the attention of the most senior individuals” at JPMorgan, according to Gokul Mani, head of ECM for emerging markets at the Wall Street firm. “We view the MENA and the emerging EMEA region as a top priority and clearly we are spending more time there.”
Houlihan Lokey Inc. recently expanded its capital markets division into the Middle East and will use its European equity capital markets bankers to pursue regional IPOs, said Andy Cairns, head of MEA capital markets.
No slowdown
Demand has remained strong - mainly among local investors - with most offerings being sold at the top end of the price range and covered within hours.
Orders are being driven by attractive dividend yields, the availability of leverage and a lack of deals elsewhere. International buyers are usually allocated 15 to 30 per cent of shares available, which can mean some portfolio managers receive so little stock they have to sell it.
“We would like to see a higher participation or a higher allocation to international investors, especially institutional ones that are longer term in nature because it helps promote the region and deepen the liquidity pool,” said Salah Shamma, Franklin Templeton’s Dubai-based head of equity investment for MENA.
Despite the headwinds, most Wall Street banks expect the IPO boom to extend into next year as demand for regional assets grows. Goldman Sachs is working on several mandates that may materialise in the next 12 months, while Citigroup expects about 10 more listings.
“I don’t foresee activity slowing down at least in the next 12 to 18 months. What happens beyond that, who knows?” said Andree Chakhtoura, Bank of America Corp.’s head of investment banking in MENA. “But so far, looking at the pipeline and bearing in mind what is coming and we know is coming, I don’t see anything slowing down.”
