Capital market desks from Riyadh to Damascus continue to experience a great deal of backlogs for IPOs that are ready and waiting for the ice to break. Experts say that risk capital will eventually open up to new issuers and the IPO market is expected to pick up further momentum in the third and fourth quarter of 2009.
The experts might be right. In late April, and despite the severe downturn in local markets, Gulf investors announced the establishment of a $10 billion Islamic ‘godfather-of-all-banks’ bank to tap interest in sharia-compliant institutions. The new bank will be based in Bahrain and will be called Istikhlaf Bank. Adnan Ahmed Yousif, chairman of the Union of Arab Banks, said plans include a private placement of $6.5 billion and a $3.5 billion IPO in the fourth quarter of 2009. He added that the bank will be listed on the Bahrain Stock Exchange and Nasdaq Dubai. Some of the seed investors include the Islamic Development Bank, Saudi Investment Bank and the Kuwait Real Estate Bank. “The bank has raised $3.5 billion including $1 billion from the management. We are hopeful it will be ready by the fourth quarter,” said Al Baraka chairman Shaikh Saleh Abdulla Kamel, who is promoting the bank.
April showers bring May flowers
So April did not only bring with it spring, it also brought with it the earning season, two other IPO announcements and solid numbers for the four insurance firms who floated their shares during the third week of the month. The concurrent IPOs of the four insurance companies on the Saudi Stock Exchange were all well received in the market, according to announcements.
Al Rajhi Company for Cooperative Insurance or ARCCI saw its $16 million offering subscribed some 151 percent in only the first two days of its IPO. According to a statement by the issue’s lead manager, Al Rajhi Financial Services Co, over 146,000 subscribers signed up on April 18 and 19 for shares worth $24 million.
The combined value of the shares offered for subscription by the four insurers approaches $70 million. Besides ARCCI, the issuers are Weqaya Takaful Insurance and Reinsurance Company ($21.33 million), AXA Cooperative Insurance Company ($21.33 million), and ACE Arabia Cooperative Insurance ($10.6 million).
AXA and ACE also encountered handsome demand; according to statements, offerings were covered about three and six times, respectively, several days ahead of the close of the subscription on April 27.
Vodafone Qatar, which closed subscription to its $952 million IPO on April 26, did not immediately disclose if there was over-subscription. However, the company praised the “overwhelming public support” it received for this IPO.
Qatar National Bank (QNB), the country’s largest bank, said that it plans to float 32.5 percent of Qatar National Bank – Syria in May in an attempt to raise over $35 million. QNB will retain a 49 percent stake in the new bank, the Syrian government 15.5 percent and three percent will be offered to private investors. QNB – Syria has a paid-up capital of $100 million and will offer 3,250,000 shares priced at SYP500 each ($11).
The Abu Dhabi-based Emirates Steel Industries plans to launch an IPO in 2011 provided local markets stabilize, said Chairman Hussein Jassim al-Nuwais. Although no additional details were provided about the IPO, if confirmed the IPO is expected to generate a lot of buzz as observers expect it to be one of the largest IPOs in 2009.
An IPO tower
The Dubai-based Alpha Tours, which had announced its intentions for an IPO in early 2007, said the travel services company will float 50 percent of its shares to the public in the second quarter of 2009. Alpha, who has appointed Ernst & Young as the lead manager for the issue, seeks to raise $150 million, according to statements made by Ghassan Aridi, Alpha Tours chief executive.
The Jeddah-based Knowledge Economic City Co., or KEC, which announced its IPO plans last month, released additional details about the float, saying that it will sell a 30 percent stake in an attempt to raise $301.6 million in May. The Saudi authorities approved KEC’s license with capital of $906 million.
So the IPO pipeline in the region continues to do better than its peers in the United States (US) and European markets. Obviously, it will take much more interest for the IPO market to return to its pre-2008 conditions, but larger private and government companies cannot continue to put off their IPOs indefinitely. As these companies scale up, so does their capital requirements.
Given the substantial opportunities for regional companies in the US and European market, the cost of expanding internationally through buying a major competitor in those markets is beyond what even large venture-capital firms can provide. Unless the larger private and government companies can tap the IPO market, they cannot continue to grow.