Mena firms raise Dh35.2bn through IPOs in 11 months

Companies in the Middle East and North Africa (Mena) raised $9.6 billion (Dh35.2 billion) through 21 initial public offerings  in the first 11 months of this year, inching closer to pre-crisis level of 2008, said the latest study released on the regional IPOs.

According to Global Investment House, this was the market’s best performance in terms of proceeds after the 2008 economic crisis when it had raised $12.4bn (Dh45.5bn) from 45 issues.

However, the average deal size in 2014 was significantly higher than that of 2008 by 66 per cent. In the last few months, the IPO market witnessed intense activities, raising $8.3bn (Dh30.46bn) , mainly led by some big names including the National Commercial Bank (NCB) and Emaar Mall Group; the two companies alone raised $7.6bn (Dh27.9bn) and were oversubscribed 23 and 25 times, respectively.

“We expect the momentum to continue, driven by MSCI’s upgrade of Qatar and the UAE to Emerging Markets, liberalisation of Saudi stock market, sustained investment in developing social infrastructure, and capacity building to host upcoming global events such as Fifa 2022 in Qatar and Expo 2020 in Dubai. Improved valuations, upbeat fundamentals of the Mena region as well as relaxed regulatory norms are key catalysts which would continue driving equity markets, boosting the IPO activity in 2015, with GCC countries in the lead,” said Fouad Fahmi Darwish, a research analyst at Global Investment House.

The Kuwait investment bank said in a note that improving Mena fundamentals and good valuations are expected to further drive the IPO market in 2015. Low interest in safe-haven assets has prompted investors to focus on equities.

“There is a significant backlog of companies waiting for the right time to get listed. Also, relaxation of IPO norms and introduction of new reforms by Mena capital markets is encouraging local companies to get listed in the domestic markets instead of considering options overseas. Furthermore, state-owned companies are exploring options to privatize firms via IPOs,” Global said in its 6-page note.

Electricity Holding Company, a state-owned enterprise based in Oman, is considering privatizing Muscat Electricity Distribution Company through an IPO or by selling ownership of a strategic partner, or a combination of both.

Though the outlook seems bright, Global said decline in oil prices could be a drag on the regional stock and IPO markets.

Fundamental drivers to sustain momentum in IPO market

Increased foreign ownership limit, especially in Qatar market that raised foreign investment limits to 49 per cent from 25 per cent in May 2014, is expected to improve the flow of foreign funds into regional equity markets, Global’s Fouad Darwish said.

This would also set the momentum for IPO markets. The opening of Mena’s largest stock market (Tadawul) to foreign investors expected in the first half of 2015 and its potential inclusion in MSCI EM likely in the first half of 2017 bodes well for Mena markets. Significant investments in developing the necessary infrastructure for Expo 2020 in Dubai and Fifa 2022 in Qatar could help improve business and investor sentiment in the region, Global said.

Quoting industry sources, Global note said the disparity between emerging and developed equity markets is expected to close by 2030, with Saudi Arabia likely to emerge as the seventh largest equity market during the same period. This would be largely driven by accelerated growth in capital raising activities via IPO.

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