IPO market to remain sluggish

The GCC initial public offering (IPO) market continues to remain sluggish with only two listings in the region in the third quarter of 2011 as compared to the three in the second quarter, says PwC, a leading international professional services organisation.

Both the IPOs in Q3 2011 were in Saudi Arabia, raising a total of $219m, with Hail Cement Company raising $131m and United Wire Factories Company raising $88m. Total deal value was down 36 per cent or $121m compared to Q2 2011 but showed an improvement of 26 per cent or $46m in comparison to the same period last year, PwC’s Q3 Capital Markets Watch Report found.

“IPO activity in Q3 has followed similarly flat levels as seen in Q2 2011. This is to be expected over the summer months and through Ramadan, with any IPO activity we are likely to see being in Q4 or more likely into 2012,” said Steve Drake, Head of PwC Capital Markets Middle East.

“Of the regional markets, we continue to see Saudi Arabia being the strongest IPO market and so expect to see continued IPO appetite in the Kingdom albeit at levels lower than we have seen previously,” he added.

In Europe, there were 121 IPOs during the third quarter of the year, raising $12.7bn, PwC’s Q3 IPO Watch Europe Report found. Of the money raised, $6.8bn came from privatisations in July of government-owned assets in Spain and Poland as well as $3.4bn from the IPO of Dia, the Iberian discount supermarket retailer.

The last few weeks of September saw the European markets slumping further due to political and market uncertainties with only $31m being raised on European exchanges. The extent of market turmoil was reflected in the postponement of the Spanish national lottery IPO in September. There has been a stream of IPO postponements and withdrawals in Europe throughout 2011 but the IPO pipeline remains relatively stable despite the market turmoil.

Sovereign conventional bond issuances during the third quarter of this year included a $4.2bn bond issued by the Central Bank of Kuwait comprising a $3bn bond and $1.2bn treasury bond component. As for corporate entities, conventional bond issuances have largely been subdued with Abu Dhabi-based Tourism Development & Investment Co. and Dolphin Energy deferring debt offerings during the quarter.

Amongst the noteworthy corporate debt issuances was National Bank of Abu Dhabi’s $124.4m yen-denominated Samurai bond and $20m private placement, with the instruments carrying a fixed coupon rate of 2.6 and 4.8 per cent, respectively.

“The turmoil we are witnessing in both Europe and the US is having an inevitable impact on the regional credit markets as investor appetite in these two economic zones for Middle East debt has historically been strong. Until such time as we see stability in these markets, it is likely that we will see lower debt issuance volumes or perhaps a shift toward a heavier Asian market bias for issuers,” added Drake.

The sukuk market continues to grow globally due to an increasing interest in Islamic modes of financing. However, sukuk issuances in the GCC region have slowed down during Q3 2011 compared to the performance in the first six months of this year, which was dominated by a $9.1bn sukuk issuance by Qatar Central Bank. Sovereign issuances during the Q3 2011 included the Central Bank of Bahrain’s $302m issue which carries a coupon between 0.7 and 0.9 per cent.

Amongst the largest corporate sukuk issuances in Q3 2011 was First Gulf Bank’s $650m issue with a tenor of five years to be traded on the London Stock Exchange. Other significant corporate issues during Q3 2011 included the first publicly listed $480m corporate sukuk issuance by Saudi International Petrochemical Company on the Saudi stock exchange with an expected return of SIBOR plus 1.75 per cent and a tenor of five years.

The international debt market has been jolted by the current economic crisis stemming from the US and Europe which has stagnated growth and sounded alarm bells for another bout of recession. Sovereign debt woes have plagued the European economies such as Greece, Spain and Italy compelling the IMF to cut global growth forecasts for the remainder of 2011.

The last few weeks of September saw a mass exodus of bond-related capital with investors exiting riskier assets depicting fraught market confidence. This turmoil has impact the regional debt market with fewer issuances in Q3 2011 as compared to Q2 2011 and Q3 2010.

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