The GCC is set to experience delays in initial public offerings especially during the last quarter of 2008 as governments have taken measures to stabilize market conditions around the region. Arab countries were following the leads of governments in developed economies, which had their hands full in trying to rein in financial markets that have spiraled out of control due to a global financial market crisis that started with the meltdown in US subprime mortgages.
With nervousness sweeping the financial planet, GCC-based analysts say that local companies have adopted a strategy of ‘wait and see’ for now, bringing about the delay of several IPOs scheduled to be launched in October and late 2008.
According to figures from Ernst & Young, the number of successful IPOs in the region had reached 36 with a value of $12.4 billion, compared with 63 worth $14.3 billion in 2007. Although market experts agree that there will be many delayed IPOs in Q4, many say that these delays will be short-lived and activities in the IPO markets is expected to pick up steam again towards the end of 2008.
The precise extent of the slowdown is unpredictable. Figures circulated in Saudi newspapers boldly put the number of estimated IPO postponements on the Saudi Stock Exchange at 80, citing unnamed stock market experts. Sources were quoted by Saudi media as saying that state- owned entities such as Saudi Arabian Airlines and the Saudi Railways Organization could postpone IPOs, which equity watchers had tentatively expected for 2009 or 2010.
The trail of IPO delays has been building in 2008 already prior to the global financial tempest in September/October. Companies citing “volatile markets” as the main reason behind cancellation or postponement in their IPOs included such well-established firms as Abu Dhabi-based Al Qudra Holding and Dubai-based Emirates Post in August, and Future Pipe Industries, which shelved its flotation on the Dubai International Financial Exchange at the end of April.
Within the second half of October, consumer goods company Trarem Afrique withdrew its IPO in Morocco and UAE investment firm Gulf Capital announced it will delay until 2010 looking at its IPO which it had planned for 2009.
Gulf Capital linked its postponement explicitly to the latest surge in market turbulences. Similarly, the Qatari unit of Vodafone Group delayed its IPO that was scheduled for last month after the capital markets regulator asked it to delay the launch due to market conditions.
Other Saudi companies named as potential flotation delayers are Al-Tayyar Travel, which had announced listing plans in May of this year, and Zamil Group Holding Company, which is on record in the Zawya IPO Monitor for a general intention to go public in 2009. Saudi IPO plans account for about 40% of Zawya’s IPO pipeline for 2008/09, which holds 167 entries.
However, despite all the meltdowns, financial crisis, and turbulent markets, several companies with IPO plans in the pipeline will likely proceed as scheduled, experts say.
One company that stated its determination to go through with its IPO is the Mazaya Qatar Real Estate Development Company, a unit of Kuwait’s Al-Mazaya Holding. Company officials said the firm will go ahead with its IPO in November despite turmoil in financial markets. Al-Mazaya seeks to raise $137 million by offering 50 million shares priced at QAR10 ($2.75). The real estate investment firm will list its shares on the Doha Securities Market and plans to raise its capital to QAR1 billion ($275 million).
The biggest catch in November, by information available at time of this writing, will be Bahraini real estate firm Naseej whose subscription period is scheduled for Nov 18 thru Dec 4. The subscription target is $265 million, representing 40% of the startup company’s paid-in capital.
Then there are IPOs scheduled for October/November by Jordan’s Alentkaeya for Investment and Real Estate Development and Al Ameer for Development and Multiprojects, a conglomerate planning to expand operations. Between them, the two firms have $12.6 million in equity to offer.
The Riyadh-based Al-Ittefaq Steel Products Co., one of Saudi Arabia’s three largest steel producers, said it plans to offer 30% stake in an IPO in the fourth quarter of 2008.
Experts agree that the global financial crisis will put a minor dent in the region’s market capitalization growth for 2008. The insurance and financial sectors will be hit the hardest but not in the same way as their counterparts in the West. The damage to the local financial sector will be pale in comparison.
Analysts agree that the current turbulence in the local exchanges has a short shelf life and doubt that investors will lose their investment appetite for the region. Stocks in the MENA region recouped some of their losses in the second week of October while Q3 profits results show a strong trend. Furthermore, governments of the Gulf Cooperation Council have taken several measures to shore up the banking sector, thus minimizing any serious damage.