More initial public offerings (IPOs) are set to be launched in the Middle East – and the UAE in particular, say international experts.
The continuing economic slowdown in Western financial markets will speed up the launch of share floats in the region as investors seek new homes for their money, they say. And they want to see new legislation to encourage more IPOs.
The investment specialists were speaking at the third Middle East IPO Summit, which started yesterday in Abu Dhabi. The four-day meeting has attracted leading experts, legislators and financial market leaders. The first day was dedicated to current and future opportunities in the Gulf.
Opening speaker Dr Marc Faber, an international investment expert and author of Tomorrow’s Gold: Asia’s Age of Discovery, said the US no longer led the world’s economy. Emerging and strong economies such as China and India could replace the US in terms of demand for oil.
He said the economic slowdown in the US was clearly reflected in oil prices and currency exchange rates of the dollar. He said he expected the slowdown to continue for some years and added investment funds denominated in the dollar should go to different parts of the world, not only the US.
He also called on countries whose currencies were pegged to the dollar – which include the UAE – to drop the peg. After delivering the speech, he explained his views further to Emirates Business: “The Gulf has huge financial surpluses. A considerable percentage of these surpluses is being invested in local ventures.
“This is an important point as the Gulf is a good emerging market for investments. The number of IPOs should increase – governments should provide opportunities for private placements and IPOs. The region will see major IPOs.”
This view was supported by the summit’s senior manager, Deep Marwaha, who said stock markets in the Gulf were preparing for a large number of IPOs. There were expected to be more than 80 over the next three years. He said statistics showed the number of IPOs in the region in 2007 rose by 201 per cent, while underwriting surpluses fell by a factor of 6.3. This was an extraordinary achievement that would encourage investors from the region and around the world to support IPOs over the next three years.
He cited a Morgan Stanley report that revealed Saudi Arabia alone would see 110 IPOs by the end of next year. The bank’s branch in Saudi Arabia had been assigned to launch seven IPOs in the Kingdom in 2008, including one for the Saudi Basic Industries Corporation (Sabic), which could raise $80 million (Dh293m).
The National Bank of Abu Dhabi (NBAD) has announced it expects to manage at least eight IPOs in 2008, including three set to gather at least $1 billion by the end of June. The NBAD handled three IPOs in 2007 and has already organised one this year.
The value of IPOs in the Gulf rose by 40 per cent to $10.5bn in 2007. The UAE raised most – $5.1bn – while Saudi Arabia was second with $4.81bn followed by Qatar with $389m, Oman $156m and Bahrain $69m.
Marwaha said new legislation was expected to be issued in the UAE that would decrease the minimum percentage of share value that firms should sell from 55 per cent to 30 per cent, allowing firms’ founding members to retain the biggest percentage of the capital.
This move would boost the number of IPOs by families and private joint-stock companies, which are keen to have finance but reluctant to surrender control.
Marwaha said Gulf markets, in particular, had experienced strong growth over the last six years partly because of rising oil prices. Revenues were invested in infrastructure, real estate and industry, which helped to push the wheel of economic growth. This was reflected in the remarkable increase in the number of firms listed on stock markets.
He said many observers expected Gulf companies to sell shares worth more than $10bn over the next three years. Demand would focus on companies that had a good financial value and a distinct specialisation, in particular financial establishments operating on Islamic principles.
He told Emirates Business that the UAE would continue to see a large number of IPOs. He based this view on a number of factors – including the strong performance of new shares, high liquidity levels and budget surpluses – that enhanced the confidence of investors.
Marwaha said the increase in the gross domestic product (GDP) of the region will help drive the surge in the number of IPOs.
He said the Gulf countries’ oil revenues were currently $1.2bn a day and political tensions related to Iran and Venezuela meant there was no possibility of a fall in oil prices.
Non-oil sectors in the Gulf also contribute to the high GDP. Most GCC countries have allocated more than $1 trillion for capital expenditure on oil and non-oil sectors over the next five years. This will have a positive effect on private sector that needs more liquidity, which will be taken from bourses.
Mamdoh Al Rohani, managing director of MS&L in Saudi Arabia, said the recession faced by the US and other Western economies would lead to prosperity in Gulf stock markets. He said the Gulf would see more IPOs as its markets have grown strongly.
The Gulf recorded a surplus of $150bn last year. There are fears the IPOs in developed markets, especially Europe and the US, will be held back due to recession. Therefore, investors were concentrating currently on emerging markets in the Middle East and the Gulf.
Mohammed Ali Yasin, managing director of Shuaa Securities, underlined the importance of the summit. He said the UAE would see a big increase in the the number of IPOs this year.
“There are currently three IPOs including one that has been delayed. I expect that there will be an average of one IPO a month. IPOs are very important and necessary because they are an important tool for raising funds. They lead to the diversification of companies and sectors that can attract investments.”
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