The story of the summer doldrums in the IPO market in the MENA region has now become an old wives’ tale. Most analysts say the IPO market is set to sizzle this summer as some big-name companies trying to capitalize on the bull market to go public. A surge in domestic liquidity and market reforms has sharply boosted IPO activity in the region this year and economists in the GCC expect the region to achieve new IPO benchmarks in 2008.
These favorable predictions come despite continued doubts over the attractiveness of one GCC exchange for stock market debutants, namely the Dubai International Financial Exchange (DIFX). In the latest IPO cancellation case on DIFX, Lebanese-owned Future Pipe Industries Group said at the end of May it now favors listing in Europe, on either the London Stock Exchange or on Euronext N.V. Future Pipes cancelled its $487 million IPO on DIFX in early May for reasons which analysts linked to the poor liquidity of DIFX and the downtrodden performance of April DIFX entrant, Depa, immediately after the start of trading.
As good news for the DIFX, Depa share prices picked up in the course of last month and on May 27 the stock closed one cent above its opening day quotation of $1.55.
Although on the weaker side in share price trends so far in 2008, Saudi Arabia’s Tadawul Exchange is one of the Arab stars in primary market action this year. In April, two new Saudi IPOs have successfully raised a combined total of $3.28 billion.
One of the two newly listed firms, construction firm Mohammad Al Mojil Group, closed its first day of trading May 27 with a 17.14% share price gain, according to the Zawya IPO Monitor. The second firm, Al Inmaa Bank was scheduled to start trading at the beginning of June. Al Inmaa was 1.74 times oversubscribed and Mohammad Al Mojil Group was 3.14 times oversubscribed.
The equity market in Saudi Arabia is set to be the recipient of further announcements of new IPOs in the third quarter of 2008. Astra Industrial Group said it will offer 30% equity, Chemanol with 50% and Maaden will float 50% to raise $2.47 billion. Also in the kingdom, Halwani Brothers, part of Saudi-based Dallah Albaraka Group, will offer 30% of its capital in an IPO that will start on June 21 and run until June 30. Another new entrant, Abdullah Al Othaim Markets Co. said it will float about 30% of equity in an IPO scheduled to start from June 21 to June 30. The company is seeking to raise around $6.13 million
In Bahrain, the IPO of Voltamp Energy, which was launched on May 5 has received very encouraging response from GCC investors. The company is raising $35.8 million and the IPO will close on June 3. Voltamp said the money raised will be used “for funding the ongoing capital expenditure and for meeting the long-term working capital requirements.”
A development in an already announced IPO on the BSE is that of Mobile operator Zain Bahrain, a unit of Kuwait’s Zain Group, which has set the second half of 2008 as the time frame to launch its initial public offering for part of its shares. Zain’s chief operating officer, Ahmad Al Shatti, said the board will decide by mid-June on the stake it will offer to the public and the value it seeks to raise.
The stable markets of the GCC continue to drive IPO activities to new levels especially since the majority of the IPOs this year have performed well against the backdrop of the subprime and credit market crises. Analysts agree that larger deals tend to encourage and pull other companies onto the IPO bandwagon. Companies large and small are now taking advantage of the spectacular growth the region is currently experiencing and going public has officially become a trend.
Surpassing the energy boom
Much of the growth in the region’s markets can be traced to the energy boom, but listings in the GCC this year have extended well beyond the high oil prices. Real estate and property firms, as well as telecom companies and financial firms have made their market debut. Investors, Arabs and foreigners alike, are finding what they are looking for in the region’s market. Strong deal flow will continue to entice institutional and private equity investors. Market observers agree that deals on track in 2008 will outpace last year’s numbers. They say the stock market will set the climate for public offerings. As long as the market does relatively well, companies will be able to raise money.