GCC IPO market to pick up

Initial public offerings (IPO) activity in Gulf oil exporters remained dormant through 2010 because of the repercussions of the global fiscal distress but it is expected to rebound this year, according to Saudi Arabia’s largest bank.

Despite some encouraging developments, the equity markets in the six-nation Gulf Cooperation Council (GCC) have not yet managed overcome their crisis-era malaise and relative underperformance as compared to many of their emerging markets peers, National Commercial Bank (NCB) said in a study sent to Emirates 24/7.

The IPO market remained lackluster throughout the year, with the euphoria of some landmark issues counteracted by delays and cancellations., the study said.

Echoing the two quarters preceding it, the last three months of the year saw only two new primary offerings and their combined value of $553.0mn actually fell short of $648 mn seen in Q3, it said.

By contrast, the quarter marked a dramatic improved on the $51.2bn issued in 4Q09 which, however, was an unusually weak quarter.

The figures showed the year as a whole saw 12 IPOs in the GCC, identical to the number recorded in 2009.

Also the aggregate value of primary issues remained virtually constant with a small increase from $1.99bn to $2.03bn.

The study said this year was far short of the $9.70bn seen in 2008 – itself an abridged year due to a complete freeze in Q4.
“In spite of the lethargic year, the outlook for the regional equity markets is becoming increasingly optimistic as the economic recovery moves towards consolidation,” NCB said.

“At the same time, some of the stress points that depressed market performance until recently are becoming resolved. In particular, investor concern about Dubai’s debts is abating and creating the basis for market normalization.”

In general, the improving money supply conditions should support investment and encourage greater issuance activity, it said.
But it added that concerns will persist in certain areas such as Dubai real estate where more time will likely be required for sustainable growth to resume, “not least due to the excess supply problems.”

The report noted that corporate sector challenges still exist with individual companies seeking government assistance or renegotiating their debts.

“The performance of the regional bourses has mirrored this investor unease and the slow recovery. Qatar Exchange was the regional star performer with a 24.8 per cent increase, the only GCC index to record double-digit gains,” the study said.
“All the other regional exchanges underperformed vis-à-vis the MSCI Emerging Markets benchmark which advanced by 16.4 per cent.“

NCB said some of structural changes currently under consideration may pave the way for more sustained improvements.
Following the merger of the Dubai Financial Market and Nasdaq Dubai, there are plans to create a fully unified national stock exchange in the UAE, it said, citing official statements in the UAE.

“If approved and implemented, the reform would likely encourage greater issuance by creating a larger pool of liquidity.”
According to the study, the regional IPO pipeline is in some ways the obverse of the recent issuance trends.

“In particular, a number of UAE issues are keen to turn to the market after a lengthy lull. Nonetheless, any recovery in the IPO market is likely to prove fairly gradual,” it said.

“As far as the historically important UAE market is concerned, the failed Axiom issue is likely to have enduring negative implications and keep the number of UAE offerings firmly in the single digits this year.”

NCB said government support has been critically important for IPO activity in the GCC during the crisis and that the situation is unlikely to change this year either.

It said major issues involving the government as an owner, sponsor, or regulator have included the Saudi insurance companies, the Knowledge Economic City, and ALBA.

“A key, much anticipated issue in this regard is Emirates Post, which is expected to raise more than $270mn,” it said.
“The possibility of further partial privatizations is being discussed as the Government of Dubai pursues fiscal consolidation. Possible candidates including Emirates Airlines, DP World, Dubai Aluminium, DEWA (Dubai Water and Electricity Authority), and Dubai Duty Free.”

NCB said possible Saudi IPOs include the Saudi Aramco Total Refining and Petrochemical Company, which is expected to float a 25% stake in Q4. Also Al Aqeeq Real Estate Development Company and Arabian Oud Company have announced offerings, probably for the second half of the year.

Bahrain’s Istikhlaf Bank intends to sell a 35 per cent stake in a $3.5bn transaction and Kuwait’s Sahaab Leasing is targeting $206.1mn, the report said.

Also Kuwait Airways is slated for partial privatization, although progress has proven slow. In Oman, Al Khalili United Enterprise is preparing a 40 per cent flotation.

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