Gulf Co-operation Council IPOs launched in 2007 outperformed the overall stock market, appreciating by an average of 201 per cent, a research report by Gulf Capital has revealed.
In the UAE, IPOs outperformed the overall index, appreciating by 239 per cent as against an overall drop of 16 per cent in the other stocks.
The average IPO size in the GCC markets is expected to increase by 26 per cent between 2008 and 2010, according to the report. The average IPO size regressed by 2.4 per cent during 2007 after increasing by 25 per cent in 2006.
“IPOs were definitely one of the success stories of 2007. They brought both volumes and foreign investors to the market. Although the year got off to a shaky start for regional markets, the last quarter saw increased trading activity from both regional and foreign investors,” Mohammed Ali Yasin, Managing Director, Emirates Securities said. “Given the negative market sentiment that was prevailing in the global markets for most of the year, the average IPO size for the year may have taken a hit. But, with the year closing on a high, the confidence level is up. The mood is positive and the market is ready to absorb the new public offers,” he said.
The report issued yesterday by Gulf Capital indicated that GCC stock markets reversed the downward trend of 2006, increasing by an average of 36 per cent during 2007. While Saudi Arabia attracted 26 of the 33 IPOs launched in the GCC last year, the UAE was the regional leader raising the largest amount of capital with $5.1 billion of funds raised from new listings.
“Although there were fewer IPOs launched in 2007 as compared to 2006 and 2005, the new listings anchored the market. IPOs attracted the most number of foreign institutional investors in the GCC markets and as the market sentiment improved in the second half of the year, IPO stocks emerged as the better deals outperforming the other stocks in terms of appreciation,” said Alaa El Din Moustafa, chief dealer of EFG-Hermes.
Five of the GCC indices have outperformed Western markets in terms of index growth in 2007, finding places among the top 10 emerging stock exchanges in the world.
Oman’s Muscat Securities Market tops the list of GCC indices, rising 60.11 per cent, followed closely by Abu Dhabi Securities Market (ADSM), which gained 52.72 per cent in the year. “Going into 2008, the UAE, Qatar and Kuwaiti bourses should be in competition for attracting foreign investment in their markets. The scope of the opportunity available for the foreign institutional investors will determine how the new listings fare in terms of its allocation. Since the decision to launch an IPO depends on the general conditions prevalent in the market, 2008 should attract a lot more IPOs across the region,” Moustafa said.
Both Yasin and Moustafa agree that the first quarter of 2008 could see some highly anticipated IPOs being launched. Emirates airline, Dubal and Dubai International Financial Exchange (DIFX) are among the eagerly awaited IPOs from Dubai this year. Yasin feels Emirates Post and Al Qudra Holding are also among the eagerly awaited attractions for regional and foreign investors.
“The Al Qudra IPO alone, when launched, could equate the total amount of funds raised by UAE IPOs in 2007,” Yasin said.
“Last year, three of the top seven stocks were IPOs. DFM, Deyaar and Air Arabia IPOs were all among the top stocks for the year. This number goes up to four in the top 10 if you include Gulf Navigation IPO. Although Air Arabia got a 100 per cent allocation, the stock appreciated consistently. So the shareholders who subscribed to these IPOs benefited tremendously,” Yasin said.
Both Yasin and Moustafa warned that while the mood is upbeat, the timing of the IPOs will be crucial this year.
“The onus is on the ESCA to carefully manage the approval of IPO applications. If too many public offerings are launched at the same time, it could have a negative impact on the overall market,” added Yasin.
According to the Gulf Capital report, the total amount raised from IPOs increased by 40 per cent last year relative to 2006. The GCC markets increased by an average of eight per cent last year, the report said.
All GCC indices have witnessed a positive trend since the beginning of last year.
“The outlook is good for 2008. The year should see an increase in both the size and number of the IPOs. The region needs more IPOs but they must be launched in an organised way,” Yasin said.
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