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29 March 2024

Regional IPOs down 80 per cent year-on-year: E&Y

Lingering after-effects of the crisis (FILE)

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By Staff

The regional IPO market managed to raise just $177.7m in the third quarter of 2010, down 79.7 per cent from the $871.8m raised in Q3 2009 and a decline of 70 per cent from the $590.6m raised in Q2 2010, according to Ernst & Young’s (E&Y) quarterly IPO Update.

The report added that this took the total of all IPO funds raised in the capital markets of the Middle East and North Africa (Mena) region since the beginning of this year till date to $1.2bn.

“IPO markets continue to demonstrate a flat trend. This is not expected to significantly improve in the remainder of this year, but companies that have plans for an IPO continue to prepare themselves,” said Phil Gandier, Managing Partner, Transaction Advisory Services, E&Y MENA.

Conventional bank financing, bonds and sukuks are likely to be the preferred mode of raising funds for regional corporations until the profitability of issuers and investor sentiment improve. The IPO markets normally recover after the secondary markets and we have been seeing a gradual recovery in the stock markets around the region,” he added.

Saudi Arabia’s Al Jouf Cement and Syria’s Becco Exchange were the only two IPOs in Q3 2010 and raised $173.3m and $3.7m, respectively.

“Companies in Saudi Arabia and Syria have consistently shown the willingness to go in for initial offerings as they have been relatively sheltered from the impact of the negative investor sentiment seen elsewhere in the region. In addition to mandatory listing regulations, companies have been taking advantage of the low cost of capital secured through the market route,” Gandier added.
 
“Companies in other countries are wary of the level of pricing and of investor demand if they decide to list. This is due to a combination of depressed earnings of the issuing company, negative investor sentiment and low volumes of trade we see on a daily basis,” he said.

Globally, the E&Y report said China dominated the Q3 IPO activity as fundraising picked up despite market volatility and fewer deals.

Asia’s growth story continues to fuel global IPO markets. The $22.1b mega IPO of the Agricultural Bank of China was the largest ever, making up almost half (42 per cent) of total IPO funds raised globally this quarter, the report said.
 
In the third quarter, global IPOs raised a total of $52.7b in 286 IPOs, (compared to $46.8b raised in 311 listings in the previous quarter). “Investors grew more cautious in Q3 amidst the economic uncertainty, however, despite some challenging high-profile debuts, 84 per cent of global IPOs in Q3 were priced within their initial filing range, while 4 per cent priced above,” the report said.

Global IPO activity in the first three quarters of 2010, $152.7b raised in 888 deals has already exceeded total yearly 2009 levels, ($112.6b in 577 listings).

In Q3, the E&Y report said Asian issuers accounted for 83 per cent of dollar volume, ($43.8b in 173 IPOs). Chinese issuers alone made up over three-quarters (76 per cent) of global fundraising ($40.1b in 110 deals – a 147 per cent increase in total proceeds from Q2).

The emerging markets accounted for half of the top 20 IPOs in Q3. All of these deals were from Asia: China (8), Indonesia (1), and India (1). In Q3, out of the top 20 IPOs, ten IPOs were from developed markets: the US (3), the UK (2), Canada (2), and the Netherlands (1) Germany (1), Australia (1).

“There are still numerous growth-seeking companies going public. After two years of waiting for the window of IPO opportunity to open, companies are accepting less aggressive valuations, expecting to return to the market at a later date and raise more capital through follow-on offerings,” said Gregory K. Ericksen, Global Vice Chair for Strategic Growth Markets for E&Y.

The financial sector was the most active, representing over half (51 per cent) of all funds raised ($26.8b in 24 IPOs), evidence of keen investor interest. The second most active sector was the materials sector ($5.7b raised in 64 IPOs), reflecting emerging market demand for commodities.

In third place was the Industrials sector ($5.7b in 52 deals), which clearly benefited from government stimulus packages worldwide targeting infrastructural development. In fourth place was the high-performing technology sector, ($4.5b raised in 36 IPOs), which experienced revenue growth even during the economic downturn.

“We have seen a gradual improvement in IPO markets in the past nine months. The global IPO pipeline continues to build up with numerous businesses worldwide seeking to fund their rapid growth.

Assuming the macroeconomic environment continues to stabilise, we anticipate that global IPO markets will improve,” Ericksen concluded.