August’s star attraction in the regional primary market was a construction and engineering group from Oman. Galfar Engineering and Contracting started receiving subscriptions for its month-long public offering on August 12 and its IPO was the largest for the month both in absolute value — $156 million with 100 million shares offered — and even more so in relation to its home market, where the measure is the biggest new equity item in a good while.
Analysts from GCC-based finance firms valued the offering highly. Based on the performance of peers in the construction industry, two finance houses — Gulf Investment Services and Fincorp — estimated the stock’s upside potential at 47-49% over the subscription price, despite its significant issue premium. Included in the offering price of 602 Baizas ($0.165) per share is an issue premium of 500 Baizas, which will provide the company with working capital and funding for expansion.
The Galfar IPO is expected to be oversubscribed by significant margins when it closes on September 10. Subscription rates for other recent IPOs ranged from no oversubscription to more than 10 times the offered amounts.
Another ongoing subscription at time of this writing is for a Kuwaiti logistics firm. A startup company with equity participation from several big names in Kuwaiti trade, Amanah Warehousing Company invited subscriptions for 60% of its capital in a $111.7 million IPO between August 20 and September 17. Amanah’s IPO has a small issue premium and is open only to Kuwaiti investors.
Smaller public offerings ongoing at the turn of August to September are a $19.5 million capital raising effort by Syria’s Al-Aqeelah Takaful Insurance and a $4.2 million effort by a Jordanian construction supplies manufacturer, which was freshly established in June of this year.
In the business of IPO fundraising in the first eight months of 2007, two regional investment banks accounted for major chunks of lead managing in terms of value. Saudi Arabia’s Samba Financial Group and Dubai-based Shuaa Capital reported to have managed amounts of $2.77 billion and $1.6 billion, according to data gathered by business information provider, Zawya. This strong performance was based on the fact that the two firms succeeded in capturing the largest individual deals in GCC markets, including the Kayan Petrochemicals and Kingdom Holding IPOs in case of Samba and the Air Arabia flotation for Shuaa.
In terms of deal numbers, however, the National Commercial Bank and the Banque Saudi Fransi, both headquartered in Riyadh, accounted for just over half of the 23 flotation measures handled by the top ten lead managers up until end of August, with seven (NCB) and five (Saudi Fransi) completed mandates. The top 10 lead managing firms attracted a total of $6.5 billion in IPO business.
IPOs lag behind 2006
By Zawya’s count, some 45 companies this year so far debuted on MENA equity markets through IPOs or equivalent measures. The Saudi primary market with 20 IPOs was the most active, followed by Jordan with eight new entrants on the Amman Stock Exchange.
In year-on-year trends, 2007 IPO numbers appear to lag behind 2006 as exemplified in the case of Saudi Arabia’s Tadawul exchange. According to the 2006 annual report of the Saudi Capital Market Authority (CMA), the kingdom’s wave of going public peaked in 2006 with 62 public offerings for shares worth close to $7.5 billion in total.
As far as initial trading for newly listed stocks went, August was surprisingly strong, defying analysts’ views that the wide gaps between subscription prices and first-day performances are on the way out at least for this month — which turned out to be overall quite atypical in more than one way for a supposedly uneventful vacation time. Of five stocks with trading debuts between August 10 and August 27, the least reported share price gain to August 27 was just over 80% by newly privatized Moroccan real estate firm CGI.
These gains, however, are peanuts when measured against the explosive gains of three Saudi insurance companies. Allied Cooperative Insurance made a first-day show of jumping 997.5% on August 27. That, however, is still nothing compared to the incredible acrobatics of Alahi Takaful Company and Saudi Indian Company for Cooperative Insurance. Alahi, which debuted on August 19, made a one-day gain of 9.94% on August 27 to SR 213 per share.
The same day was Saudi Indian’s second day of trading. Incidentally, it was not a strong day for the Tadawul All Shares Index; it weakened by about 0.4% — but Saudi Indian advanced by 9.96% to a close of SR 132.50. Mind you, the rules for flotation of insurers in Saudi Arabia’s opening of this sector to private operators after a long wait stipulated that the issue price for any insurance stock is at a par value of SR 10 — so Allied Cooperative and Saudi Indian enter the region’s stock market annals with share price gains of more than 120 times and more than 200 times in their first two days and two weeks of trading, respectively.
For Saudi investors, this may be a good moment to note in their agendas that one more insurance company IPO is in the pipeline for the third quarter of 2007. Others, who are barred from buying on Tadawul because they are not legal residents of Saudi Arabia, may observe this highly localized insurance IPO bubble in bewilderment.