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28 February 2024

No UAE public issue in sight until second half

By Matt Smith

The IPO drought will continue across the Middle East and North Africa region in the first quarter 2009 as companies shy away from going public in the tough economic climate.

While 13 IPOs (initial public offerings) are tentatively slated for the first three months of this year, analysts say scant few of these are likely to come to fruition any time soon.

One exception should be Etihad Atheeb. The Saudi telecoms firm is slated to open its Dh294 million IPO on Sunday, while a further four Saudi companies have announced their intention to float by the end of March, according to Zawya IPO Monitor. There are three from Qatar, two from Bahrain, two from Syria and one from Tunisia.

None are expected from the UAE and this situation will continue until the region's stock market starts to show convincing signs of recovery, which most analysts say will be unlikely until the second half of 2009.

"Everybody is negative about the equities market, so I don't expect any IPOs in the UAE in the first six months of this year," said Sherif Abdul Khalek, Beltone Financial institutional trading manager.

"The earliest we could see any domestic IPOs will be the third quarter, although Abu Dhabi could surprise us, because it is looking much stronger than Dubai.

"We will have to wait until we're over the worst in terms of bad news on the economy, both locally and globally."

Lead managers and financial advisors say there has not been a marked drop in companies preparing for IPOs, but this is a two-year process and so firms will wait for market conditions to improve.

"The outlook is bleak," said an analyst, who did not wish to be named.

"There's no way companies will look at the current state of the Gulf market and think the time is ripe for an IPO.

"Nothing major will happen until the secondary market has turned round. Financing has dried up and there's little appetite from investors. Quarter one, and probably quarter two, will be a write off across the region."

The freeze on IPOs started in the fourth quarter of last year. In the first nine months of 2008, 50 IPOs in the Mena region raised a combined $3.8 billion (Dh13.95bn), which compares with $1.6bn from 54 IPOs in the corresponding period of 2007.

However, in the fourth quarter of 2008, a paltry $22 million was raised across the region, which is a fraction of $7.5bn raised in the corresponding period of 2007.

This late slump means the value of regional IPOs fell nine per cent year-on-year, from $14.4bn in 2007 to $13.1bn in 2008.

Saudi Arabia accounted for 74 per cent of all capital raised through IPOs last year and also claimed the five largest offerings.

Alinma Bank was the most valuable at $2.8bn, followed by Saudi Arabian Mining and Mobile Telecommunications Company, which completed offerings worth $2.5bn and $1.9bn respectively.

The UAE saw $1.2bn raised through IPOs, which is 10 per cent of the region's total. Nasdaq Dubai led the way with $702m, following the listing of Depa and Damas, while the Dubai Financial Market's four floatations earned $524m. The Abu Dhabi Securities Exchange attracted two minor IPOs worth a combined $62m.

Regional markets continue to be dominated by the usual sectors, with financial services accounting for 30 per cent of all IPOs. These generated $3.3bn or a quarter of all capital raised.

Mining and metals' three IPOs were worth $2.5bn to earn a 19 per cent share, followed by oil and gas with $2.2bn – or 17 per cent – in five IPOs. Construction and telecoms were the two other sectors to claim a double-digit market share.

The latter is a top pick among analysts, with telecoms' predictable earnings a safe haven for investors during the current economic strife. This sector raised $1.96m in IPOs last year.

Real estate – the dominant sector on the UAE markets – trailed in sixth with a five per cent share after seeing six IPOs earn $656m.