Initial public offering (IPO) activity has fallen considerably in the Middle East and this trend is expected to continue in 2009, say experts, as most companies in the region will be postponing their IPO plans reflecting the fall in investor sentiment and the global economic downturn.
According to a year-end IPO Update by Ernst & Young, IPO activity in the Middle East declined noticeably in the last two months of 2008. In October-November 2008 a total of $22.4 million (Dh82m) was raised from three IPOs compared to $6bn raised from 10 IPOs in the same period in 2007. And this year is expected to be no different, said analysts that Emirates Business spoke to.
"Today, the IPO market is shut across the region. Both investors and regulators see no prospects for most of the IPOs aspiring to go to market with few exceptions. Atheeb Telecom of Saudi Arabia will be testing investors' propensity to subscribe in its greenfield IPO this month," said Imad Ghandour, Executive Director at Gulf Capital.
According to Ali Khan, executive director of capital markets at Arqaam Capital, launching an IPO is not a very good option to raise capital in the current scenario. "Well, if a company can successfully raise the funds, then sure it's a good option. But in my opinion the prevailing market sentiment is one of caution and clearly global primary deal flows have stopped from about early summer last year. Furthermore, real estate, almost without exception globally, is experiencing downward pressures. So for a real estate firm to tap the IPO market during Q1 of 2009 would be a challenge," he said.
Experts expect the first half of 2009 to be particularly bad for IPOs. "IPO activity is expected to decline sharply in the first half of this year, and the outlook for the second half is unpredictable," said Ghandour. "There is a dearth of IPOs coming to the market in Q1 2009. It is difficult to judge the performance of the market from the few that will make it."
According to Khan: "The IPO window is closed for the moment due to prevailing market sentiments. However, six or nine months is a long time in capital markets – especially these days. The key catalyst for the Dubai stock market – the primary deal-flow window – would be for investors to really understand the levels of possible corrections to come in the housing market.
"Once there is a better understanding of pricing trends, stock markets may well rally well before house prices actually reach bottom, as investors will take a 12 to 18 month view ahead.
"In that scenario, we may be better able to predict what the trends will be over the next three to four months, and assuming the trend is within revised expectations, markets in UAE could start to recover quite significantly by Q3 or Q4 of 2009. Logically, this could provide Nakheel an IPO window to go ahead and list.
"Despite current pressures on real estate prices, it would be premature to rule out the whole of 2009 and to simply take a view that such a fund-raising is not possible."