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29 March 2024

GCC IPO in 2010 up 26%; Saudi dominates

More than $30bn worth of IPOs are in the pipeline in the Gulf, three-fourths of which may come from the UAE including $15bn of Nakheel (FILE)

Published
By Sam Smith

The value of IPO market in the GCC climbed 26 per cent in 2010 to $2.7 billion compared to $2.1bn in 2009, ending the year with a positive note.

An Emirates 24/7 analysis of Capital IQ data shows that although the number of IPO deals this year went down to 10 from 12 last year, the total amount surged to $2.69bn from $2.13bn a year earlier, where most of the IPOs issues were greenfield statutory offerings, those that are ideally placed in secondary exchanges.

Similar to last year, most of the issuances in 2010 came from Saudi Arabia with eight deals worth $1.85bn or about 70 per cent of the total. In terms of value, the kingdom is followed by Oman ($475 million) and Bahrain ($372m).

However, three of the eight issuances from Saudi Arabia were insurance listings, which most analysts don’t actually count as a barometer of the health of the IPO market because they are statutory mandates.

In 2009, Saudi also lead the market with 11 IPOs worth $1bn, half of the issuances value-wise. Qatar made up the other half thanks to two deals worth $1bn (Vodafone’s $952m and Mazaya Qatar’s $137m).

This year, Saudi Arabian Lubricating Oil Company’s $1bn transaction tops the list followed by Oman’s Nawras ($474.7mn), Bahrain’s Aluminium Bahrain ($372.24) and Saudi’s Knowledge Economic City ($272mn).

Cancellation

There was one withdrawal – the deal, which what would have been the UAE’s first IPO in two years. Axiom Telecom Board withdrew its IPO offer and Nasdaq Dubai listing plans “to protect” current and future shareholders.

In 2009, one IPO deal – the $320m IPO of Al Tayyar Travel Group Ltd – was also withdrawn after a bookbuilding process failed to attract enough demand.

Axiom Telecom pulled its IPO offering two days before the listing, citing “widespread concerns about market conditions and liquidity” in spite of sufficient orders to fully cover the IPO book, primarily subscribed by institutional investors in Europe and the US.

It has planned to issue 289m shares at the price range per share of $0.80-1.15 The deal would have fetched $332m, but only relatively a small part of the fund raised was earmarked for boosting its business, with existing shareholders selling about two-thirds of the shares on offer.

Axiom itself would have received a maximum of $107 million and it said it would use $100 million of this to pay off some of $354 million in credit lines.

Institutional vs retail investors

Axiom was only marketed to institutional investors against a market dominated by retail investors.

In contrast, the Nawras IPO was said to be successful because of its focus on retail investors.

Omani Qatari Telecommunications Company or Nawras has completed its IPO, which raised OMR182 million and has had an initial market capitalisation of OMR456 million, positioning Nawras as a top five Omani company by market capitalisation. The IPO was also the first offer in Oman to be completed using the bookbuild method. (Axiom also used the bookbuild method, as mandatory in Nasdaq Dubai).

Compared to the fixed price method, the book building method is more efficient as it solves the "leakage" of value often seen with fixed priced IPOs.

In the fixed price method, the company, or 'issuer', values the company and prices the share at a pre-determined price. For example, five of Saudi IPOs – Knowledge Economic City, Al Jouf Cement Company, Abdullah A.M. Alkhodari Sons Company, Solidarity Saudi Takaful Company, Amana for Cooperative Insurance Company, and Wataniya Insurance Company were all offered at a price of $2.67 per share.

In bookbuilding, the issuer sets a price range within which the investor is allowed to bid for shares. The range is based on where comparable companies are trading and an estimate of the value of the company that the market will bear. The investors then bid to purchase an agreed number of shares for a price, which they feel reflects fair value.

By compiling a book of investors, the issuer can ascertain what price range the shares should be valued at, based on the demand of the people who are going to buy them, the investors. In this process supply and demand are matched.

Nawras IPO was reserved for individual or retail investors for up to 70 per cent and the remaining 30 per cent was for institutional investors.

About 70 per cent of the offering was open to Category I investors, and 30 per cent was open to Category II investors who can participate in the book building process. Category I investors could apply for a minimum of 500 shares in multiples of 100 up to a maximum of 500,000 shares, and Category II investors could apply for a minimum of 500,100 shares up to a maximum of 26,037,700 shares.

After the IPO, all the selling shareholders, with the exception of Nawras Development, continued to retain a stake in Nawras, including TDC-Qtel MENA Investcom BSC, which is controlled by Qatar Telecom and the pension funds of the Diwan of the Royal Court, the Ministry of Defence, the Royal Office, the Internal Security Service and the Sultan’s Special Force.

Alba

The third largest is Alba, whose initial public offering was fully covered with around 75 per cent of demand coming from institutions and the remainder from retail investors including employees.

Offering period commenced on October 24, 2010 and closed on November 4, 2010. Each Global Depositary Receipt represented five ordinary shares. The shares offered as a part of this offering have been listed on the Bahrain Stock Exchange and on the London Stock Exchange in the form of Global Depositary Receipts.

JP Morgan Securities acted as the underwriter for the issue of global depositary receipts and Gulf International Bank managed the domestic share issue.  Its 33 million ordinary shares fetched $80.1m, while its 14.6m depositary receipts registered $174.6m revenue and its 35.5m common stocks $117.5m.

2011 pipeline

Report from Al Masah Capital shows that of the top ten IPOs planned in the Mena for 2010 that of UAE-based Nakheel is the largest in the list with the state-owned entity planning to raise $15 billion.
Nakheel has however said it is preparing the ground for an initial public offering of its shares, but ruled out an IPO in the short term.

This is followed by Bahrain-based Istikhlaf Bank’s $3.5 billion IPO for 35 per cent of its equity.
UAE-based transportation company, Emirates Post is also planning to raise $272.3mn whereas Kuwait-based transportation company, Sahaab Leasing has a planned $206.1mn offering in the pipeline. Saudi food & beverage company, Aujan Group has also planned to dilute 30 per cent of its equity and raise $159.9mn to $213.2mn through a secondary offering.

“Companies in the region will be eager to enter the IPO market as investor appetite grows stronger,” Al Msah Capital said. “The UAE leads in value terms with $25.3bn worth of IPOs planned in 2010 followed by Bahrain with $3.8bn and Saudi Arabia with a total of $1.03bn.”

Overall, according to Al Masah Capital, there are more than $30bn IPOs in the pipeline in the GCC, three-fourths of which may come from the UAE and may include Nakheel ($15bn), rumoured Al Qudra Holding ($997m), Al Rawabi Dairy Company ($436m), Emirates Post ($272m), Damac for Commerce and Service ($245m), Alpha Tours ($150m) and Al Yousuf Motors ($122.5m).

In Saudi Arabia, the pipeline includes Zamil Group Holding, National Air Services ($600mn), Power and Water Utility company for Jubail and Yanbu ($466m), Aujan Group ($186m), Hail Cement Company ($160m), and City Cement  Company ($73m).

In Bahrain, expected companies to IPO are Istiklaf Bank ($3.5bn), Seera Investment Bank ($800m) and Naseef (265$m). In Kuwait, Sahaab Leasing ($206m), Esdarat Holding ($189m) and Kuwait Airways are expected to boost the IPO market.