Optimism about a year-end pickup in initial public offerings (IPOs) cannot conceal that August was yet another bone-dry month, which continued the plunge of all IPO measures in the MENA region in 2009.
Only one company, the Saudi medical services firm Al Mouwasat, undertook a subscription in the Gulf Cooperation Council last month. Al Mouwasat offered 7.5 million shares in a bid to raise $88 million; it did not announce any over-subscription after its IPO closed on August 21.
Another company undertook an IPO on the floundering Damascus Securities Exchange (DSE): Qatar National Bank-Syria. The company said its offering of 3.4 million shares for $37 million met with substantial demand, resulting in an over-subscription of almost 2.5 times. The IPO closed on August 10.
While the lowdown in regional IPO activity in August has been attributed to a mixture of uninspiring first-half results, the summer vacation season and the beginning of Ramadan, it keeps local and global investment professionals waiting another month in limbo for the potential of Arab IPO markets to regain speed.
So far this year only 12 companies have approached public markets, compared to 50 during the same period in 2008. The total amount of capital raised so far this year has dropped 85 percent from $13.12 billion to $1.98 billion, half of which came from the IPO of Qatar’s Vodafone.
Average oversubscription levels have come down considerably from 15.71x in the first 8 months of 2008 to 3.69x over the same period in 2009.
Although the drop in oversubscription levels may be reflective of the prevailing risk-averseness among investors, some see it as a positive development.
“We stand at a much healthier level of oversubscription because investors are being allotted a larger number of shares, so they do not lose interest anymore,” an associate vice president at a major Saudi investment bank told Regional Press Network on condition of anonymity because he was not authorized to speak with the media.
The executive attributed the slowdown in the number of IPOs in the kingdom to regulatory and administrative red tape, adding that “the IPO market in Saudi Arabia is not suffering, and the Capital Market Authority is in fact studying many applications.”
Indeed, after being propelled to the global leadership list of public offerings in 2008, Saudi Arabia again flexed its muscles in 2009 with the number of issues reaching eight and raising almost $1 billion.
Companies were able to raise 10 times more in 13 offerings during the same period in 2008, but the lower 2009 number of Saudi IPOs contrasts positively with that of neighboring United Arab Emirates, where IPO activity has stalled. Activity in the UAE fell by eight IPOs and $1.3 billion raised over the same period last year.
Amman’s IPO activity also came to a halt in 2009 through August, after 13 offerings and a total offering size of $125 million during the same period in 2008. Similarly, no IPOs have been registered in Cairo, Casablanca, or Muscat so far in 2009, after strong showings in 2008.
“Why are the Saudis so dominant?” asked Jeff Singer, CEO of NASDAQ Dubai in a recent Ernst & Young report. “You have a lot of companies that really never went public… The stock exchange in the last few years has become a truly viable market. We’re seeing what looks like a pent-up demand for companies going public.”
Saudi IPOs have indeed become the torch bearers of the move to public ownership in the region. Most recently, shareholders of SABB Takaful, one of the Saudi’s largest insurance companies, voted to increase the company’s capital by issuing shares.
The pipeline for the kingdom also holds further promises. Three insurers — Buruj for Cooperative Insurance, Al Alamiya for Commerce and Services and Gulf General Cooperative Insurance Company are scheduled to open their IPOs in early October. These insurance companies have also received CMA approval to sell shares.
The success of IPO offerings in the kingdom is in fact surpassing the initial offering stage to reach the secondary market. Ace Arabia and AXA Cooperative Insurance, whose IPOs were 11.35x and 5.71x oversubscribed, marked their Saudi stock market debut with whopping 662 percent and 267 percent spikes on their first day of trading.
Similarly, Saudi Steel Pipe Company and National Petrochemical Company which were 3.44x and 2.11x oversubscribed, respectively, and ran up 34 percent and 30.5 percent respectively on their first day of trading in August.
NASDAQ Dubai’s Singer, in his interview with Ernst & Young, also expressed optimism that the successful Saudi trend will continue.
“We’ll continue to see more companies out of Saudi Arabia than anywhere else in the Gulf. And I don’t think it’s anywhere near the demand that would exist if the market conditions were better than are right now,” he added.
Despite the concentration of IPOs in the kingdom, Bahrain, Tunisia and Syria’s markets still saw a bit of IPO activity.
Outside the Saudi game
Bahrain’s Gulf Finance House said in August it had received central bank authorization for a capital increase and, pending shareholder approval, plans a $300 million rights issue to bolster its balance sheet and fund possible investments. In addition, Manama-based Takaful International Co, an Islamic insurer, announced a 20 percent rights issue for September that will increase its capital by $2.6 million to expand its business and underwriting capacity.
In Tunisia, cement company Les Ciments de Bizerte announced plans to raise $76.3 million to finance the expansion of the plant and increase the clinker production capacity.
In the Levant, Syria is expected to see several public offerings throughout the rest of 2009, as the DSE works to increase the number of its publicly-listed companies.
Besides Qatar National Bank-Syria, which closed its IPO with a 2.5x oversubscription, Audi Bank Syria and Banque Bemo Saudi Fransi successfully increased their capital through share issuances.
The list for the next several months includes additional financial firms, of which Albaraka Bank Syria’s IPO has been scheduled for the first week of October.
Lebanon’s only action came from privately-owned chocolatier, Patchi, which said that the group is preparing for a bourse listing on the London and Dubai stock exchanges to finance international expansion.
The region’s most disappointing market remains the UAE, where no equity capital has been raised so far in 2009. A thin ray of hope came from the deputy CEO of the Securities and Commodities Authority (SCA) Mariam Butti al-Suwaidi, who said that “markets are expected to witness one IPO from a local company,” adding that “the number of applications that the SCA received since the beginning of the current year is three.”
Nevertheless, the bittersweet reality is that the practical standstill of IPO markets in several MENA countries is a situation shared by many abroad, as a result of violent equity market fluctuations and fears of being publicly snubbed by investors.
Commenting on the global drop in share issues, Edward Law, co-head of Western Europe Equity Capital Markets at Deutsche Bank, said that “companies recognize that now is not an easy time to IPO. At the moment, they are looking for broader guidance on the direction of the economy — on when we are going to see some stability in the macro environment and also in underlying equity markets.”
NASDAQ Dubai’s Singer added that “valuations across all asset classes have declined significantly in the last 12 to 18 months, and the ability to achieve an attractive valuation is an important driver to encourage owners of potential IPO candidates to sell these assets through the public markets.”
Singer predicted that “the fourth quarter of 2009 is most likely the realistic time here for when the Middle East IPO markets will open up.”
Regional Press Network