Given the ongoing weakness in regional equity markets right now, it’s no surprise that the IPO market is still on the ropes. Many financial analysts from Ernest & Young, UBS, Gulf Capital, Global Invest and others maintain that 2009 will experience slow growth in IPO opportunities, and equity capital markets desks from Dubai to Saudi Arabia are sitting on their hands.
But some market observers are optimistic about the ice jam breaking for IPOs in the near-term, especially sometime in the second half of 2009. “The IPO window is closed for the moment due to prevailing market sentiments,” Ali Khan, executive director of capital markets at Arqaam Capital says. “However, six or nine months is a long time in capital markets, especially these days… once there is a better understanding of pricing trends, stock markets may rally well before house prices actually reach bottom, as investors will take a 12 to 18 month view ahead,” he adds.
The region’s IPO market is nowhere near recovery, but it looks like investors will have several offerings to choose from in the coming months. Saudi Arabia’s Mawarid Holding has appointed Saudi Hollandi Capital as lead manager for the planned IPO of its unit, Meed Trading Company. Although the company did not provide the details of the offering, the IPO is expected to be launched by the end of the 2009 after regulatory approvals. Meed Trading, which operates more than 200 retail outlets across the kingdom, “will be restructured prior to the IPO to make it a majority stake holder in seven other subsidiaries of the Mawarid Group,” the company said in a statement.
Also in Saudi Arabia, Abdul Mohsen Al Hokair Tourism & Development Group, announced plans for an IPO to raise funds to develop tourism projects on the Saudi coast and further develop plans to construct over 30 hotels across the Arab world. The company did not provide details as to the size of the offering and possible launch date, but Abdul Mohsen Al Hokair, the group’s chairman, said the launching is very much dependent “on the performance of the local stock market.”
In the region’s most battered economy due to the global financial crisis, one announcement came out of Dubai. Private charter Silver Air, said it will launch an IPO as part of its strategy to raise capital to expand its fleet with three additional Boeing aircraft. “This acquisition would be funded by an IPO in two to three years time with a listing in Dubai,” Steffen Harpoth, chief executive of Silver Air, told the press.
Meanwhile, the IPO of Etihad Atheeb Telecommunication or Atheeb, Saudi Arabia’s second fixed-line operator, was 3.5 times covered with subscriptions totaling more than $282 million. Atheeb launched its IPO in early February and the float was closely watched by market observers to assess investors’ appetite for IPOs. The company expects to list on the local stock market before mid-March and will begin its commercial operations by mid-2009.
In the Levant, the Damascus Securities Exchange gave the go ahead to Bank Audi Syria and the United Group for Publishing, Advertising and Marketing, to list their shares. Bank Audi Syria is a subsidiary of Lebanon’s Bank Audi. Bank Audi Syria’s capital stood at $54.3 million at the end of 2007, according to available data. While Damascus-based United Group’s capital stood at $6.51 million at the end of last September.
Some analysts believe that individual and institutional investors remain in defensive mode, and in light of the current economic fundamentals and overall valuations, investors are more likely to buy shares in undervalued companies than in an IPO. “Investors’ reluctance regarding IPOs is understandable,” Samer Shaheene, senior analyst at Bloomberg says. “Many have been stung by stock market declines and a risk-tolerance level for IPOs is on the low end,” he adds. This has forced companies to seek out new sources of capital, where possible.
However, precedence shows that investors will always seek and find good investment opportunities in any market conditions. “When there is a period of lower-than-normal IPO issuance, bounce back is possible,” Jad Hawali, analyst at Zawya.com says. “The bounce back can happen without a solid overall equity market simply because there is pent-up demand for capital by private companies,” he added.
According to available data from Zawya.com, there are close to 60 IPOs planned for 2009 so far. Although there are alternative means to raising capital, the IPO is a favorite course for regional investors. Given the swiftness with which investors and companies respond to changing financial and economic conditions, this scenario may be what will play out at the end of the first quarter.