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05 June 2023

IPO market starts to look bullish again

By Ryan Harrison



The commonly held belief the IPO (initial public offering) market in the region is set for a blistering 2008 has been somewhat realigned in recent months. The lacklustre performance of UAE stock markets and subdued international sentiment have proven to be a thorn in the side of companies going public.

Despite a flawless track record in 2007 – which saw the total raised by IPOs in the Gulf Co-operation Council region increase by 40 per cent year-on-year to $10.5 billion (Dh38.56bn), with the UAE witnessing $5.1bn – faltering Dubai and Abu Dhabi markets have shaken expectations.

However, a boost came last week with the more than 85-times oversubscription of the Ajman Bank public share offer. The Shariah-compliant bank was offered Dh48bn – the most heavily subscribed UAE IPO in 15 months – which restored confidence among IPO hopefuls.

Once again it appears investors can look forward to attractive share offers this year as fund managers have a bullish outlook for the IPO market. Investors can also enjoy a share in the success of a few family-owned businesses as the recent change in the Companies Law on public float limits could prompt them to realise their goals of an international reach.

UAE stock market regulator, the Emirates Securities and Commodities Authority (Esca), said new issues worth more than Dh8.5bn will be floated in the UAE’s stock markets in 2008.

About 12 to 14 new companies will be listed on the markets, and Esca has received applications from six private shareholding companies seeking public conversion with a total paid-up capital of Dh15.4bn.

Financial pundits expect the markets’ momentum to continue this year, capitalising on the expected improving corporate profits, the robust growth of the economy, increasing international oil prices and the flow of foreign funds.

But there are aberrations such as the postponement of public issues of Al Qudra Holdings and Nanodynamics – neither market-driven decisions – and the lacklustre performance of the Dubai Ports World stock on the Dubai International Financial Exchange.

Emirates Business spoke to the experts to find out what has led to this more challenging environment, whether now is a good time to launch an IPO and how positive analysts are about growth for the rest of the year.


What has changed?

Divakar Rajasekaran, fund manager at Argent Financial Group, said global hiccups have altered investor’s feelings towards IPOs.

“The IPO market is a difficult market at the moment given we were looking at a very bullish region in 2007 and we hoped that it would continue into 2008, but there have been some hiccups in terms of what’s happening globally, which has affected the IPO market in the region.”

Gulf Capital recently said the total number of IPOs in the GCC region during the 2007-2010 period is expected to exceed 116, while the National Bank of Abu Dhabi has already announced it expects to manage at least eight this year.

Rajasekaran said: “The one trigger for fulfilling those targets is a stable market with reduced volatility in the local markets. We are still feeling the fallout of the credit crisis and in the current environment people don’t know what the risks are.”

Nasser Al Shaikh, chairman of Amlak Finance, is confident of a buoyant IPO market in 2008, but said cash-rich investors in the region have been somewhat perturbed by the local equity markets.

“We will still see several IPOs in the UAE throughout the year, because the liquidity and generation of wealth in this part of the world, especially with oil prices, is there,” he said.

“Performance was affected by global events that had nothing to do with the UAE and GCC, but as you open your doors to foreign investors you tend to be affected by them.”

Investors could have been bemused by recent statistics that showed during 2007 over-subscription per IPO fell to 6.3 times, but Ajman Bank’s success has altered that mood.

Mohammed Ali Yasin, managing director at Shuaa Securities, said Ajman Bank’s over-subscription was an example of the thriving appetite for IPOs.

“There’s a lot of liquidity today and because of the high inflation and low interest rates, retail and institutional investors are looking for ways to invest this money and the safest investment chance for them now is either the real estate or equity market. Going to IPOs is probably the safest provided you don’t leverage a lot.”

Ajman Bank’s position is a dilemma for investors, with commentators arguing market wisdom dictates when an IPO offer is hugely oversubscribed, it usually means someone has got it wrong.


Is now the time?
Companies considering going public, as well as investors, must consider whether now is the right time to launch an IPO. Rajasekaran is sceptical about the UAE’s chances.

“Generally, the IPO market is buoyant when the underlying market is healthy. You like to place an IPO in the market when there is a demand for equities. Under the current scenario where we’re looking at a global risk contraction, the sentiment is being affected.”
Peter Panayiotou, acting CEO at Bahrain-based Gulf Finance House, said two factors are dampening enthusiasm for IPOs: “The authorities have clamped down on premiums and the secondary markets are doing very well now. Appetite for new issues is there, but it’s not as great as it would have been if the secondary market was relatively quiet.”

He added: “This time of the year, between now and September, I would expect a seasonal adjustment and the markets to come back down a little bit as people sell after the dividends are paid. In that environment, do you want to be launching your IPO? Probably not.”

How bright is 2008?
The outlook for the growth of the IPO market across the GCC region this year, if based purely on the behaviour of markets, is far less bullish than was previously thought.

“In 2008 we will still see more IPOs. However, it won’t be similar to what we witnessed in the past. We’ll start to see existing companies who have a track record of going public,” said Amlak’s Al Shaikh.

Continued uncertainty over the broader global economy and regional strife has dogged the Dubai bourse in recent weeks. The region’s liquidity is unquestionable but commentators have blamed apprehension among investors for keeping money out of the markets.

Ali Yasin admits these conditions have an impact on the success of IPOs, but warned against judging the market by the first two months.
“Even though the statistics are not great and people’s expectations were higher, which they usually are for stock markets, by the end of February the markets were up and in terms of volume we are close to double what we were this time last year.”
Plus, the wider GCC’s IPO market enjoys protection from international economic forces, according to Panayiotou, whose Bahrain bank recently announced its new venture, First Energy Bank, which is to sell 30 per cent of its share in an IPO within two years.

He added: “The GCC market has its own momentum and its own life. What’s happening in the GCC is a local phenomenon, and foreign investors want to raise that phenomenon. The GCC equities markets should hold up reasonably well in relation to the West.”


Will regulations boost the market?
The appetite for IPOs in the region was readjusted recently by government forces with changes in the new Companies Law on floating 30 to 50 per cent of shares.

This move is expected to encourage more family businesses to go public as it essentially lowers the amount they are forced to give up to investors.

“It can help launch hundreds of companies going public and raising hundreds of millions of dollars worth of capital,” said Tom Healy, director-general of Abu Dhabi Securities Market.
Al Qudra Holdings recently postponed its IPO to wait for the changes to be brought into force. Al Shaikh said the changes resolve an issue at the heart of family businesses’ opposition to going public, the loss of management control.

“If they go public under the current framework they have to offer 55 per cent to the public, and they lose management control, which is something most if not all family businesses would not like to do.”



What’s On, What’s Not


Between 12 to 14 firms are predicted to tap the capital market this year. According to a report by EFG Hermes, that list will include Depa United Group, Abu Dhabi Vegetable Oil Company, M’Sharie, Abu Dhabi Securities Market, Dubai Aerospace Enterprise and The National Investor.

The National Bank of Abu Dhabi (NBAD), on the other hand, has announced a plan of at least eight IPOs this year in the UAE it expects to manage, with three aiming to raise at least $1 billion each by the end of June.

Al Qudra Holding, which said it was delaying its March IPO to later in the year, is one of the eight. Last year, NBAD managed three IPOs and one so far this year.

Ajman Bank is now awaiting a DFM listing, after its recent over-subscription.

Abu Dhabi-based Gulf Capital identified 83 maiden offers in the GCC, for which managers have been assigned for 42 and another 41 have announced their intention to tap the equity market.

The total number of IPOs in the GCC during the 2007-2010 period is expected to more than exceed 116.